By Malcolm MacKillop and Hendrik Nieuwland
Court casts doubt on enforceability
of standard termination clauses
'Narrow view' doesn't reflect consensus amongst judiciary.
I
n the April 2013 edition of this
magazine we wrote about the
utility of using a contractual termination clause to minimize an
employer's severance obligations. A recent decision of the Ontario
Superior Court of Justice has cast some
doubt on the enforceability of termina12
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a u gu st 2013
tion clause language commonly used
by employers.
In Stevens v. Sifton Properties Ltd.,
the plaintiff Deborah Stevens had a
written employment contract that
spelled out her entitlements on termination without cause as follows:
The Corporation may terminate your
INHOUSE
employment without cause at any time
by providing you with notice or payment
in lieu of notice and/or severance pay, in
accordance with the Employment Standards Act of Ontario.
You agree to accept the notice or payment in lieu of notice and/or severance
pay referenced . . . herein, in satisfaction
of all claims and demands against the
Corporation which may arise out of statute or common law with respect to the
termination of your employment with
the Corporation.
Stevens was terminated without
cause after three years of employment.
Relying on the termination clause, the
employer paid Stevens her minimum
three weeks' pay under the Employment
Standards Act. The employer also continued Stevens' full benefits coverage over
the three-week notice period.
Stevens brought an application to the
court claiming the termination clause
was unenforceable. The court agreed and
held that employers could displace the
common law presumption of reasonable
notice of termination by contractually
limiting entitlements to the minimums
provided under the ESA. However, the
court concluded the termination clause in
question provided Stevens with less than
her minimum ESA entitlements. This was
because the termination clause did not
expressly state that she would receive benefits. The ESA requires an employer to
continue all benefits over the minimum
statutory notice period. The court cited
the decision in Machtinger v. HOJ Industries Ltd., in which the Supreme Court of
Canada held it is unlawful for contractual
language to provide an employee with
less than the minimum entitlements
