CASUAL LEGAL: Auld Lang Sign: New Year’s Resolutions for Employers – Part 1

Auld Lang Sign: New Year’s Resolutions for Employers – Part 1

By Andrew Skeith

Reynolds Mirth Richards Farmer LLP

AMSC Casual Legal Service Provider

With a new year ahead of us, now is an excellent time for employers to consider their existing employment agreements and personnel policies, especially in light of a number of recent decisions of Canadian appeal courts and the Supreme Court of Canada which likely invalidate or call into question many previously drafted employment agreements.

Termination Clauses

It is often recommended that employers include in their template employment agreements a termination clause limiting an employee’s common law entitlements to reasonable notice (or pay in lieu) upon termination. A common form of such a clause attempts to limit the employee’s entitlements upon termination to those minimum amounts of termination pay set out in the Employment Standards Code, RSA 2000, c e-9. Two recent Ontario Court of Appeal decisions, Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679 and Benjamin Waksdale vs. Swegon North America Inc. 2020 ONCA 391 clarify the law as to what form such a termination clause needs to take to be effective.

In Andros the termination clause contained a “failsafe” mechanism: It stated that upon the employer terminating the employee’s Employment without cause, the employee would be provided with a set amount of termination pay (two months of base pay in this case), or their employment standards minimum entitlements, whichever was greater. The Court of Appeal found that the clause was unenforceable as the clause was ambiguous and could have contravened the minimum amount of termination pay guaranteed by Ontario’s legislation, and the “whichever was greater” language failed to save it.

In Waksdale the termination clause providing for the employee’s “without cause” termination was valid and enforceable. However, the employment agreement also contained a clause which allowed the employer to terminate the employee for “just cause”, and that clause had language which contravened the provisions of Ontario’s employment standards code legislation. The Court of Appeal held that, despite the employer not relying on that clause, if any part of the termination clause was contrary to employment standards, the entire termination clause was void and unenforceable.

Based on the cases above, it is imperative that employers ensure that all of the portions of the termination clauses contained in their employment agreements are valid and enforceable, or else they may face significant severance pay liabilities upon termination of an employee.