In North v. Metaswitch Networks Corporation, 2017 ONCA 790, the plaintiff had been employed by the defendant under a written employment agreement. The employee’s contract limited the employee’s entitlements upon termination to the minimum notice and severance pay required under the Ontario Employment Standards Act, 2000 (“the “ESA”). The termination clause also stated that any payments owing to the employee upon termination would be based on the employee’s “base salary”.
The plaintiff argued that this statement contravened the ESA, which requires that payment in lieu of notice and severance pay be calculated based on “regular wages”, a defined term in the ESA. “Regular wages” include commission pay, which the plaintiff earned during his employment; however, commissions did not form part of the plaintiff’s “base salary” under his employment contract. Accordingly, the plaintiff argued that the agreement contracted out of a minimum entitlement under the ESA, and that the termination provision was therefore void and unenforceable. The plaintiff therefore claimed entitlement to reasonable notice at common law.
The employer argued that, to the extent that the statement regarding “base salary” was inconsistent with the ESA, this specific sentence could simply be struck from the termination clause, leaving the remainder of the clause intact and enforceable. In support of this argument, the employer relied on a severability clause in the employment contract that stated that any illegal or unenforceable provision would be severed from the contract, leaving the rest of the contractual provisions in full force and effect.
The trial judge agreed with the employer’s argument, and used the severability clause to excise what she found to be the offending part of the termination clause. The plaintiff appealed.
The Court of Appeal for Ontario found that the severability clause could not be used to save a portion of the termination clause. The Court of Appeal relied on Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 and the oft-cited Supreme Court of Canada decision of Machtinger v. HOJ Industries Ltd.,  1 S.C.R. 986 for the proposition that, where a termination clause contracts out of an employment standard under the ESA, the court is to find the entire termination clause to be void. Applying that concept to the facts before it, the Court of Appeal found that the entirety of the agreement’s termination clause was invalid, not merely the sentence regarding “base salary.” Accordingly, the plaintiff was entitled to reasonable notice of termination at common law.
The Court of Appeal noted that there were sound policy reasons behind this approach, as employers should be encouraged to draft agreements that comply with the ESA. In the Court’s view, if the only consequence for failing to comply with the ESA was that the contract was interpreted to be minimally compliant, then employers would, in effect, be incentivized to attempt to “get away with” contracting out of the ESA.
This case is significant for employers as it highlights that termination clauses in employment contracts must be clearly and carefully drafted so as to avoid contravening the ESA, and that a severability clause cannot be relied upon as insurance against poor drafting. If an employer wishes to limit an employee’s termination entitlements to less than the employee’s common law reasonable notice period, it must take care to ensure that it does so in a manner that does not offend the ESA. Accordingly, employers should ensure that their employment contracts are regularly reviewed by employment counsel.
While Ontario decisions from an appeal court are not binding on the appeal courts of different provinces, they are often persuasive and may therefore be followed or considered by the courts of other Canadian provinces.