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Lessons about Termination Clauses

By , February 14, 2018 1:29 pm

As we have written before, termination clauses may have a significant effect on how much money you receive if you are terminated.

Many termination clauses attempt to limit the termination and severance pay an employee will receive. Throughout 2017, we saw several decisions from Ontario judges which decided termination clauses were not enforceable. In these cases, the courts often ordered the employer to pay more to the employee because the termination clause was poorly drafted.

In a recent decision, the Ontario Court of Appeal, went the other way. The Appeal Court upheld a termination clause finding that is was enforceable.

The Case: Nemeth v. Hatch Ltd., 2018 ONCA 7

In this case, Nemeth was employed by Hatch for 19 years.  When his employment was terminated, Hatch provided only the bare minimum payments under the Employment Standards Act (ESA): 8 weeks’ notice of termination and 19.42 weeks’ severance pay.

Nemeth’s contract included a termination clause stating that: “…employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.”

Based on previous court decisions, this clause appeared to be missing important elements.  It did not include statements about the ESA requirements of severance pay and benefit continuation. It also did not say that Nemeth gave up his rights at common law.

Likely because of this, Nemeth brought a wrongful dismissal action which went up to the Court of Appeal. The Court held that the termination clause did not need to have specific language removing the employee’s common law rights.  The Court found that the “intention to displace an employee’s common law notice rights” was evident from the contract. It also held that while the termination clause did not mention severance pay or benefit continuation that did not make the clause unenforceable.

Lessons for Employees

This clause was surprising to many employment lawyers and was a different approach than the Court of Appeal and other courts in Ontario took throughout 2017. The case highlights how important it is for employees to have their employment contracts reviewed by a lawyer.  Employees should not wait until after termination to try and fight about their contract.  Making sure that you understand the terms and conditions of your employment contract or offer letter and negotiating to improve the language can have significant financial benefits at a later date.

If you have been given an employment contract to sign, or have recently been terminated, you should consult a lawyer.  You can contact us at [email protected] or 647-204-8107 and one of our lawyers would be happy to assist you.

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