Job terminations can be devastating and can have significant impact to a person’s financial and personal wellbeing. This is one of the reasons that employers are generally required to provide a notice period before termination to allow the employees to have time to prepare and find alternative employment. Alternatively, employers are required to make a payment to the dismissed employee equivalent to the wages and entitlements that would have been earned during the notice period if they choose to terminate an employee immediately. Employers often attempt to limit their obligations towards employees by pre-emptively adding clauses that limit termination entitlements in the employment contract. Fortunately, not all of these clauses are legal and binding and employees that have their termination entitlement contractually limited may actually be entitled to far more.
ESA Notice Period vs Reasonable Notice Period
Generally, the default notice period for an employment contract where there is no termination clause is governed by the common law under the concept of reasonable notice period. This entitlement is often described more as an art than a science as there is no specific formula that determines the entitlements under this principle. Common law reasonable notice is entirely on a case-by-case basis that examines a myriad of factors of the dismissed employee including their ability to find alternative employment as well as their length of service. Regardless of its unpredictable nature, common law reasonable notice period and it’s respective payment in lieu is almost always higher than the statutory entitlement.
What is a Common Law Reasonable Notice Waiver?
Knowing that employees can be entitled to months, maybe even years of wages at the time of dismissal due to common law, employer try to waive the rights of employees through termination clauses. Often times, employer will add clauses that states that the employee shall waive their entitlement to common law reasonable notice in the initial employment contract. Canadian courts generally allow clauses that contract out common law notice rights. These waivers may significantly diminish what an employee may be entitled to at the time of dismissal.
Fortunately, any term that is found in contravention of Canadian statutes and laws is found unenforceable and nullified. Furthermore, a recent legal development in the case of Waksdale v. Swegon North America Inc., 2020 ONCA found that a contravention in one area of the termination clause will render all of the termination stipulation and clauses void in an employment contract. The Court ruled that termination clauses in a contract must be read as a whole instead on an individual item to item basis. What this means for employees in Canada is that they may be entitled to common law reasonable notice even if they waived their rights if part of the termination contract contravenes a law.
Does a Waiver Exist?
One of the first elements that needs to be identified to understand an employee’s rights is whether a waiver of common law reasonable notice exists or not. The onus of clarity in the language of the contract is relatively high and employers are required to make their waivers abundantly clear or otherwise they will be found unenforceable.
An example of a waiver that an employer implemented but was not sufficiently clear to remove common law entitlements is Vinette v. Delta Printing Ltd. 2017 ONSC 182. The following is the clause in question:
Termination Without Cause: Delta may terminate your employment at any time on a without cause basis by providing you with written notice of termination or payment in lieu of that notice and severance pay, if applicable, mandated by the ESA.
In the event of without cause termination Delta will continue those benefits mandated by the ESA for the period required by the ESA, and you will be responsible for the replacement of such benefits thereafter.
The Court found that the clause did not clearly preclude common law reasonable notice entitlements. Furthermore, the Court also stated that if it was ambiguous if common law reasonable notice was excluded, that it would have ruled in the favour of the employee anyways. The Court stated that if an employer wishes to contract out an employee’s right to common law reasonable notice that it must be in clear writing and that the limitations must be clearly stated.
Employees should bear in mind that even if a clear and unambiguous waiver exists, it does not necessarily mean that it is enforceable. It is important to remember that all terms of the termination aspect of an employment contract must be legal for the waiver to come in to affect.
ESA Minimum Notice Period & For Cause Dismissal
The most obvious area for an employment contract to contravene a Canadian statute is the minimum legally required termination notice period. If any of the termination clauses stipulate that the employee shall receive less than the statutory allowable period of notice, than the entirely of the termination clause is void. For Ontario employees, this period is written out in the Employment Standards Act, 2000, S.O. 2000, c. 41 (ESA).
Employers are often aware of this requirement and thus try other avenues to limit employee entitlements. One of such common ways is to stipulate a clause that states that no notice is required for for-cause dismissal. Sometimes, this is actually illegal and can render any waiver to common law reasonable notice void. This is because the ESA does not distinguish between for-cause and without cause dismissal. Under the ESA the requirements for notice periods, severance and continuance of benefits are the same regardless of with or without cause. The ESA has its own standard of conduct that bars employees from entitlements.
The ESA’s minimum standard to remove entitlements is found below:
An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
An employer seeking to bypass the ESA minimums on the basis of conduct must meet a standard higher than just cause and must meet the threshold set forth by the ESA. An example of this concept in action is the case Perretta v. Rand A Technology Corporation 2021 ONSC 2111. The employee disputed the validity of a termination clause that is set out below:
Termination With Cause — We may terminate your employment for just cause at any time without notice, pay in lieu of notice, severance pay, or other liability, subject to the ESA. For the purposes of this Agreement, "just cause" means just cause as that term is understood under the common law and includes, but is not limited to: [list of Eleven Categories of Just Cause]
Of the 11 categories mentioned in the list, three of the categories did not meet the threshold set forth by the ESA. The Judge therefore found that terminating without notice for anything less than the ESA threshold was invalid even if there is just cause and thus any waiver that is attached would be found unenforceable.
Just cause alone is not sufficient to deprive an employee from the statutory requirements and attempts at doing so may render termination clauses invalid.
It should be noted that it is not uncommon to see employers attempt to limit the rights of employees that are hired on a probationary basis. Often times, employers stipulate in the contract that probationary employees are not entitled to any notice whatsoever. This is a direct contravention to the ESA as it does not differentiate the entitlements between a probationary and regular employee with respect to notices. Probationary employees are entitled to the same level of notice that a regular employee is entitled to under the ESA.
ESA Benefits Continuance
The relief from a waiver to the right of reasonable notice does not only come from an infringement on the statutory notice period. If any of the termination clauses that limit an employee’s entitlement to the continuance of benefits after dismissal, either in terms of substitute payment or otherwise, can result in the nullification of the waiver as well.
This is demonstrated in the case Lamontagne v. J.L. Richards & Associates Limited 2021 ONSC 2133, 2021 CarswellOnt 4676. The employee (plaintiff) was suing the employer (defendant) and was claiming reasonable notice period. The employment contract stipulated that the employee waived all of their entitlements under common law.
One of the clauses in the contract, however; infringed the ESA because it stipulated that the notice period was the entirety of the employee’s entitlement on dismissal and precluded the employee’s entitlement the continuance of benefits. The ESA requires that all benefits shall be continued unchanged until the end of the ESA notice period. By limiting the employee’s termination entitlement to only the ESA notice period, the employer had infringed on the employee’s rights to continue to receive benefits provided by the employer until the end of the notice period.
Due to the infringement, the entire termination clause was rendered void and the employee was restored their rights to common law reasonable notice. The employee was ultimately awarded $40,273.07 on top of the $30,590.00 paid originally by the employer for the ESA minimums as well as an addition of $338.96 and $719.84 for additional benefits. A small contravention in benefits may significantly alter an employee’s entitlements.
It is worth noting that silence to the benefits an employee is entitled to at the time of dismissal is not necessarily sufficient to prove an infringement. However, language that limit entitlements to just the notice may be sufficient to nullify the termination clauses.
Some employees are additionally entitled to severance pay contingent on the seniority or employer payroll requirement set forth by the ESA. It is imperative to note that this entitlement is separate and differentiated from the standard notice period found in common law and the ESA. This is a statutory entitlement that applies to employees that have been employed for 5 years or more and if the employer severed 50 or more employees in a six-month period or has a payroll of $2.5 million or more. The employer is responsible to pay an additional sum totalling to one week of wages per year of employment to any employee that is entitled to severance pay.
Employers are required to be cognisant when drafting their termination clauses as to not infringe on this statutory entitlement. If an employer erringly excludes or includes the severance pay as a different entitlement, it may render the entire termination clause void.
The case Wood v. Fred Deeley Imports Ltd. 2017 ONCA 158 demonstrates that if an employer mistakenly merges the severance pay into a different stipulation it may result in a contravention to the ESA. The clause in question reads as follows:
[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks' notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph.... The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.
The clause states that the company would dispense severance pay pursuant to the ESA as an inclusion to pay in lieu of notice of termination. Even though the clause states that severance pay would be provided, the court found that it violated the employee’s entitlement to severance pay because it was constructed as part of pay in lieu of notice of termination. The Court noted that the two items are separate obligations and when combined give rise to ambiguity on whether the employee is entitled to severance pay or not. The Court ruled that the ambiguity should be read in favor of the employee and thus found the clause invalid and infringed upon the ESA. Subsequently, the Court found that the employee was entitled to common law reasonable notice on the basis of the invalid termination clauses.
Sometimes employers attempt to protect themselves by adding saving provisions that state if any of the terms were to fall below the minimum provisions of the ESA, the ESA minimum would come into force instead. This, in theory, would allow employers to protect against having the pay reasonable notice even if they have an illegal termination clause within the contract. In practice, however; that is not always the case as the Court may rule that these provisions are too ambiguous and may be found invalid.
As seen in the case mentioned earlier, Perretta v. Rand A Technology Corporation, the employer tried to save their unenforceable termination clause by pointing to a saving provision found elsewhere in the contract. The saving provision read as follows:
a) The Termination With Cause Provision states that it is "subject to the ESA". It provides further that the minimum entitlements under the ESA will govern: "If your minimum entitlements upon termination pursuant to the ESA exceed that which is set out above, your minimum entitlements under the ESA will govern."
(b) The 2018 Employment Contract contains a 'General' provision that states: "If any provision of this Agreement provides a right or benefit that is less than the corresponding minimum right or benefit under the ESA that provision will be deemed to provide the corresponding minimum right or benefit under the ESA."
The court acknowledged that this clause when read with the rest of the contract may neutralize any offending clauses, but the Court also indicated that such a clause required strong legal knowledge to understand. The Court ultimately found that when both the offending term and the saving provisions were read together it was confusing and ambiguous to the employee. The Court ruled that any ambiguity should be read in favor of the employee and ruled that the saving provision was therefore not effective. Ultimately, in this case the employee was awarded an additional $16,807.52 on top of their ESA allowed amount on the basis of reasonable notice
Employees should take note that if an offending term exists in their termination contract a saving provision will not always protect common law reasonable notice waiver from being found invalid. Employers have a very high burden to make the terms of the agreement clear and catch-all safety provisions do not always work.
Protecting Your Interests
Navigating employment contracts is a complicated undertaking and it is easy for a layman to misunderstand their rights and forfeit their rightful entitlements. Especially at the time of termination the guidance of a legal professional is imperative to realize the full extent of a dismissed employee’s rights.
SAV Paralegal Services is experienced in restoring and protecting the rights of employees and can help you navigate and protect your interests during the most difficult times of your career. Even when your employment contract seemingly restricts your rights, SAV Paralegal Services may identify contraventions, liberate you from unlawful restrictions and restore your entitlements.