years of employment, the employee was advised that her employment would be terminated on a without cause basis. The employee had signed an employment contract the day after she commenced employment with the employer, though she had previously received a copy of the contract to review. The employment contract purported to limit the employee’s entitlements on termination 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 employee brought an action for summary judgment, alleging that her entire employment contract was unenforceable or, in the alternative, that the termination clause in particular was unenforceable. This motion was dismissed by the motion judge, who held that the contract and the termination clause were enforceable. The motion judge also found that, in the event that he was incorrect on the enforceability of the contract, the employee’s entitlement to reasonable notice at common law would be equal to nine months of her salary and benefits.
On appeal, the Ontario Court of Appeal considered whether the employment contract was unenforceable as a whole, and whether the termination clause in particular contravened the ESA because it had the effect of excluding the employer’s obligation to make benefit contributions during the statutory notice period and/or because it did not satisfy its obligation to pay statutory severance pay.
First, the Court found that the contract was enforceable notwithstanding that it had only been signed after she started working. This was because the employee had actually seen a copy of the contract before she commenced working.
Second, the Court found that the termination clause was unenforceable because it violated the ESA in two ways. First, the Court found that the language of the termination clause effectively excluded the employer’s statutory obligation to continue making benefit contributions during the statutory notice period. Second, the Court found that two of the three options through which the employer could discharge its obligations under the termination clause – namely the provision of only working notice or a combination of working notice and pay in lieu thereof – could deprive the employee of her entitlement to statutory severance pay. Consequently, the Court found that the employment contract did not meet the minimum standards under the ESA and the employee was therefore entitled to reasonable notice of employment termination at common law as assessed by the motions judge.
This case highlights the importance of ensuring that termination clauses in employment contracts are clearly drafted and clearly express the employer’s intent to comply with employment standards legislation.