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Posts tagged: termination clause

Employer Alert: Termination Clause UPHELD by Ontario’s Court of Appeal in Nemeth v. Hatch Ltd

By , January 12, 2018 2:20 pm

On Monday, Ontario’s Court of Appeal concluded in Nemeth v. Hatch Ltd., 2018 ONCA 7 that the following termination clause was legally enforceable and that the terminated employee who had been employed for 19 years was entitled to 19 weeks termination pay:

The Termination Clause

The Company’s policy with respect to termination is 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.

My guess is that most employment lawyers who have read this decision are scratching their collective heads, and asking, “What?”

This decision will result in many plaintiff side lawyers taking pause and re-evaluating their cases.

Until this case was released many trial judges were bending over backwards to find uncertainty and ambiguity in termination clauses and striking them down which benefited employees. For a summary of some of these cases click here

The decision in Nemeth v. Hatch Ltd. is a good case in point. An enforceable termination clause meant the employee was entitled to 19 weeks termination pay. If the clause had been found to be unenforceable however then the employee would have been entitled to closer to 19 months notice.

Lesson To Be Learned

At the moment, it is extremely difficult if not impossible to guess whether or not an Ontario trial judge will enforce a termination clause in an employment contract. The Court of Appeal has found a number of such clauses to be enforceable however for the last few years trial judges have been finding ways to get around these cases or as, lawyers say, have concluded these decisions are distinguishable.

In Nemeth v. Hatch Ltd. the Court of Appeal may have been trying to bring more certainty to the law as it relates to the enforceability of termination clauses. In the short term, however, I predict that this decision will create more uncertainty in this area of the law.

Case Study: Why You Need to Periodically Review Your Employment Contract

By , October 11, 2017 9:08 am

A well-drafted employment contract is the best employment law investment an employer can make. It protects an employer from significant liability and will usually save thousands of dollars in termination costs.

An employment contract should be reviewed periodically because judges are refusing to enforce termination clauses if they are not drafted properly.

In a recent case, Covenoho v. Pendylum Ltd.,2017 ONCA 284, Ontario’s highest court concluded a termination clause was not legally enforceable because it might breach the Employment Standards Act (“ESA”) in the future.

The Facts

Joss Covenoho signed a one year fixed-term contract with Pendylum Inc. The employer terminated her agreement without advance notice when she had been employed for less that 3 months. The termination clause stated in part that the contract could be terminated before the end of the fixed-term “if the Pendylum Client to which you have been contracted terminate[s] its contract with Pendylum for your services”.

Decision by Motion Judge

The motion judge concluded that since the employee had been employed for less than three months, she was not entitled to any notice of termination. Under the ESA an employer is not required to provide any notice of employment to an employee during the first three months of employment.

Decision by Court of Appeal

The Court of Appeal reversed the motion judge’s decision and found that the termination provisions were void. It ruled that “the terms must be construed as if (the employee) had continued to be employed beyond three months; if a provision’s application potentially violates the ESA at any date after hiring, it is void”. In this case, if Ms. Covenoho had been terminated after three months of work, then the termination clause would have violated the ESA because she could have been terminated without any notice of termination (or any payment in lieu of notice) contrary to the ESA.  The court also ruled the employee was entitled to receive the salary that she would have earned for the balance of the fixed-term contract.

Lessons for employers:

1)   Employers should periodically review their termination clauses to ensure they are properly drafted and do not provide shorter notice than required by the ESA.

2)  As we have written about before, it is generally a bad idea to enter into a fixed term contract. If a fixed term contract must be used, it must include an enforceable early termination clause.

On October 16 and October 20 MacLeod Law Firm is holding seminars in Toronto and Barrie that will cover three topics. One topic is why employment contracts need to be reviewed periodically. Cases like this one is one reason but there are other reasons. Information on the seminar can be found here.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

Employer Alert: Ontario Judges Are Refusing to Enforce Employer Friendly Termination Clauses

By , October 24, 2016 5:36 pm

On October 18, 2016, I spoke to a room full of lawyers about the state of the law concerning the enforceability of termination clauses in employment contracts. In particular, I discussed termination clauses that attempt to limit an employee’s termination pay to the minimum notice of termination provided for under the Employment Standards Act (“ESA minimums clause”). This blog is a brief summary of my paper.

Why Does This Issue Matter?

For an employee earning $ 52,000 a year who is terminated after 25 years’ service, an enforceable ESA minimums clause could mean the difference between receiving $ 8,000 or $ 104,000 in termination pay. Conversely it means a potential $ 96,000 cost saving for the employer.

The Law

The Supreme Court of Canada has stated that an employee is entitled to receive reasonable notice of termination unless the contract of employment clearly specifies some other period of notice, whether expressly or implicitly, as long as the employee receives the minimum notice of termination set out in employment standards legislation. Further, absent considerations of unconscionability, there is nothing legally objectionable with an ESA minimums clause.

So the battleground is whether an ESA minimums clause clearly overrides the employee’s right to receive reasonable notice of termination.

Four Ways to Attack A Termination Clause

Employee lawyers have attacked the legal enforceability of ESA minimum clauses in different ways, such as:

  1. The Termination Clause is Ambiguous

In one case, a judge found the following clause to be ambiguous and therefore not enforceable:

“Employment may be terminated at any time by the Employer and any amounts paid to the Employee shall be in accordance with the Employment Standards Act of Ontario.”

In another case, a judge of the same court came to the opposite conclusion in connection with an ambiguous ESA minimums clause.

  1. The Termination Clause May Violate the ESA in the Future

In one case, an employee signed a termination clause that met the minimum standards set out in the ESA at the time it was signed but if the employee worked for a certain number of years it would no longer meet those standards. The judge found that a potential violation of the ESA rendered the clause unenforceable. Three years later a judge of the same court came to a different conclusion when interpreting a similar termination clause.

  1. The Termination Clause does not Satisfy the Minimum Requirements of the ESA

In one case, an employee signed an ESA minimums clause but it did not state that his group employee benefits would be continued during the ESA minimum notice period as required by the ESA. A judge concluded the clause was not enforceable because it did not satisfy the minimum standards set out in the ESA.

  1. The Termination Clause does not Explicitly Override an Employee’s Right to Receive Reasonable Notice of Termination

In 2016, a judge concluded the following clause was not enforceable because it did not clearly state the employee was giving up his right to receive reasonable notice of termination:

“Termination: Start date to three months: this length of service is a probationary period and the employee is not entitled to any notice or salary in lieu of notice…Three months to one year – one-week notice. One year to three years – two weeks’ notice. Three years and over – one week notice for each year of employment to a maximum of eight weeks. This policy shall be maintained in accordance with the ESA.”

This judge refused to follow an earlier decision by a judge of the same court that reached the opposite conclusion when interpreting a similarly worded clause.

Lessons to Be Learned

  1. Employee lawyers closely review ESA minimums clauses and often attack them in legal proceedings.
  1. Judges refuse to enforce ESA minimums clauses for many reasons.
  1. Because judges of the same court are disagreeing on whether termination clauses are enforceable it is extremely difficult to predict how a particular judge will interpret a particular termination clause.
  2. Employers should always require a new employee to sign an enforceable termination clause.
  1. Existing ESA minimums clauses should be carefully reviewed by an employment lawyer to determine whether they need to be amended to withstand judicial scrutiny.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

 

 

New court case necessitates review of termination clauses in employment contracts

By , September 27, 2016 8:51 am

Some employment contracts have termination clauses which state that an employee will receive notice of termination “in accordance with the Employment Standards Act” or words to that effect. The purpose of this clause is to take away the employee’s right to common law reasonable notice of termination.

In 2000 an Ontario Superior Court judge concluded that this kind of language meant that an employer was only required to provide the employee with the minimum notice of termination stipulated in the Employment Standard Act.

Earlier this year, however, another judge of the Ontario Superior Court came to a different conclusion and found that this kind of language was not good enough to override the presumption that an employee is entitled to reasonable notice of termination. In Singh v Qualified Metal Fabricators Ltd., 2016 CarswellOnt 8795 a judge of the Ontario Superior Court of Justice was called upon to interpret the following termination clause:

“Termination: Start date to three months: this length of service is a probationary period and the employee is not entitled to any notice or salary in lieu of notice…Three months to one year – one-week notice. One year to three years – two weeks’ notice. Three years and over – one week notice for each year of employment to a maximum of eight weeks. This policy shall be maintained in accordance with the Employment Standards Act.”

 The judge concluded, among other things, that because the contract did not state that the employee was giving up his right to common law reasonable notice of termination then the clause did not limit his right to the minimum notice provided for under the ESA. As a result, the judge concluded that the employee who was terminated after almost four years’ service was entitled to four months’ reasonable notice as opposed to the four weeks’ notice of termination this above-noted clause suggests he was entitled to receive. He specifically rejected the approach adopted by the judge in the 2000 decision.

 If other judges follow the Singh decision, then some termination clauses that were considered enforceable will no longer be legally enforceable.

 Lessons to Be Learned

  1. All new employees should be required to sign an employment contract with an enforceable termination clause. In the Singh case, if the termination clause had been enforceable then the employer could have reduced its obligation to provide notice of termination from four months (ie. 17.3 weeks) to 4 weeks.
  2. Employee lawyers are increasingly attacking the enforceability of termination clauses. In fact, I am speaking at an employment law conference in October about the different ways that employee lawyers are attacking termination clauses.
  3. Given the decision in Singh, and the propensity of employee lawyers to attack the enforceability of termination clauses, employers should consider having an employment lawyer review their existing termination clause to ensure that it will withstand judicial scrutiny.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

Is your employment contract enforceable?

By , June 9, 2016 4:11 pm

We’ve written before on the importance of termination clauses in employment contracts. A recent case from the Ontario Superior Court of Justice is a good example of not only including a termination clause in an employment contract, but ensuring that it abides by minimum standards set out by the law.

Carpenter v Brains II, Canada Inc.

The Facts

Between 1996 and 2007, Ms. Carpenter worked at a company that was eventually sold to Brains II. In 2007, Brains II extended a written employment contract to Ms. Carpenter, which she accepted. Ms. Carpenter worked at Brains II until May 28, 2014, when she received notice that her employment would terminate effective July 23, 2014. She received eight weeks’ working notice and 18 weeks’ severance pay in accordance with the Employment Standards Act.

Ms. Carpenter commenced a wrongful dismissal action seeking damages for the income she lost. Brains II argued that her employment contract precluded her from claiming extra damages. The contract stipulated that Brains II would provide notice or salary in lieu thereof and severance pay under the ESA, and that she was not entitled to any other compensation by reason of the termination. Ms. Carpenter argued that the termination clause was unenforceable as it did not mention benefit continuance during the notice period, which does not comply with the ESA.

The Decision

The court found that the termination clause provided the employee with less than her minimum statutory entitlements and was therefore null and void. Due to the way the contract was drafted, the fact that the termination clause provided for salary in lieu of notice and made no mention of benefit continuance lent itself to the interpretation that the employer was attempting to limit the employee’s entitlements upon termination in contradiction with the ESA. Therefore, Ms. Carpenter was entitled to extra damages.

Lessons to be learned

  1. It is a good idea to require new employees to sign an employment contract with a termination clause.
  2. Even if the employment contract includes a termination clause, it may be unenforceable if it is not drafted properly.
  3. You should consult with a lawyer that is familiar with the nuances of drafting and employment law to ensure your employment contract is valid and enforceable.

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