The Ontario Court of Appeal released yet another decision on the interpretation and enforceability of termination clauses: Rossman v. Canadian Solar Inc., 2019 ONCA 992. Recent appellate decisions on this matter have been inconsistent on this issue and unfortunately, Rossman is more bad news for employers. Nevertheless this decision provides guidance that should be considered in reviewing and drafting termination provisions in employment contracts.

Ultimately in Rossman, the Ontario Court of Appeal ruled that the termination clause in question was void because it attempted to contract out of the Employment Standards Act, 2000 (“ESA”). This was despite the fact that the termination clause contained a “saving provision”. A “saving provision” is a provision that purports to guarantee minimum statutory entitlements regardless of any other language in the agreement.

Key Takeaways

A saving provision will not cure a termination clause that explicitly attempts to contract out of the ESA. This is the case even when the contract provides a greater benefit than the ESA in the employee’s particular circumstances (the employee was only entitled to three weeks’ notice under the ESA based on his length of service but the benefits provision in the employment contract provided him with four weeks’ notice). Any ambiguity in an employment contract will be interpreted against the interests of the employer. As such, employers must draft termination clauses with care, ensuring that clause complies with the ESA and unambiguously sets out the employee’s entitlement at the end of their employment.

Employers should still consider including a “saving provision” in their employment contracts but must understand that this kind of provision may not “save” language that is otherwise clearly unenforceable.

Background

The employee commenced employment with the company in 2010. In 2012, the employee was promoted. Both the employee’s 2010 and 2012 employment contracts contained the following termination clause:

  1. Termination of Employment

9.01 The parties understand and agree that employment pursuant to this agreement may be terminated in the following manner in the specified circumstances:

. . .

(c) by the Employer, after the probation period, in its absolute discretion and for any reason on giving the Employee written notice for a period which is the greater of:

(i) 2 weeks, or

(ii) In accordance with the provisions of the Employment Standards Act (Ontario) or other applicable legislation,

or on paying to the Employee the equivalent termination pay in lieu of such period of notice. The payments contemplated in this paragraph include all entitlement to either notice of pay in lieu of notice and severance pay under the Employment Standards Act OntarioIn the event the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the notice or payments in lieu of notice contemplated under this agreement. The Employee agrees to accept the notice or pay in lieu of notice as set out in this paragraph as full and final settlement of all amounts owing by the Employer on termination, including any payment in lieu of notice of termination, entitlement of the Employee under any applicable statute and any rights which the Employee may have at common law, and the Employee thereby waives any claim to any other payment or benefits from the Employer. Benefits shall cease 4 weeks from the written notice.

After three years of employment, the company dismissed the employee without cause in 2014. At the time of termination, he was 33 years old earning an annual salary of $82,500 with benefits and bonus eligibility. The employee commenced a wrongful dismissal action and the parties brought competing motions for summary judgement.

The Motions Judge’s Decision

The motions judge found the termination clause to be void and unenforceable because the final sentence in the clause, “[b]enefits shall cease 4 weeks from the written notice” was either ambiguous as it flies in the face of the rest of the clause or it was an attempt to contract out of the minimum standards under the ESA by limiting benefits to four weeks regardless of the term of employment. The ESA provides that notice of termination may continue for up to eight weeks and benefits must be continued for that period of time.

Accordingly, applying common law principles, the motions judge determined that the employee was entitled to five months’ reasonable notice of his termination.

The Court of Appeal’s Decision

The Court of Appeal upheld the motions judge’s decision, on the basis that the termination clause was void at the outset because of the four-week benefits clause, which contracted out of the ESA. Even if it was not void at the outset, the Court of Appeal found that the termination clause contained genuine ambiguity and it was therefore void and unenforceable.

The employer argued that the termination clause was valid because the saving provision in the termination clause was identical to the saving provision that the Court of Appeal upheld in Amberber v. IBM Canada Ltd., 2018 ONCA 571.

The Court of Appeal rejected this argument because the termination clause in Amberber did not contain the four-week benefits clause. In Rossman there was a genuine ambiguity created by the duelling language in the termination clause — the initial ‘ESA trumps’ language versus the concluding ‘but nothing above 4 weeks’ language. Unlike the rest of the language in the termination clause, the four-week benefits clause was not future facing, nor did it express an intention to conform to the ESA. The saving provision, while designed to make the termination clause compatible with future changes to the ESA, could not reconcile a conclusory provision that was in direct conflict with the ESA from the outset.

However, this appears to be in direct contradiction to the Court of Appeal’s commentary in Amberber where the Court stressed that termination provisions should be read as a whole and that courts should not strain to create an ambiguity where none exists.

The Court of Appeal reiterated the following key principles of interpretation vis-à-vis employment contracts:

  • Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESAis an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship.
  • A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Employees should know at the beginning of their employment what their entitlement will be at the end of their employment.
  • Faced with a termination clause that could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee.

The Court of Appeal emphasized the public policy rationale for finding the termination clause void. In particular, the Court of Appeal commented that employees need to know the conditions, including entitlements, of their employment with certainty. This is especially so with respect to termination of employment — a vulnerable and stressful moment for employees.