Contract Clarity Is Critical Around ESA Rules on Termination

Written by Daniel Standing LL.B., Editor, First Reference Inc.

Ontario has recently been a hotbed of decisions considering the validity of termination clauses in employment contracts. At issue in Lamontagne v J.L. Richards & Associates Limited, 2021 ONSC 2133 (CanLII) was whether a termination clause ousted the employee’s entitlement to common law reasonable notice of termination. If it was sufficiently clear, the employer would win. If it was ambiguous, then the employee would have access to the more generous common law entitlement of reasonable notice. Read on to find out how the court decided the issue.

Background

Annick Lamontagne was a 36-year-old bilingual chartered accountant working for an accounting firm. At the time she was terminated without cause, she occupied the position of controller, reporting to a vice-president and overseeing about eight employees. When she was let her, the company paid her the statutory minimum under the Employment Standards Act, 2000 (“the ESA”). She sued, seeking common law notice.

The termination clause at issue allowed for dismissal “during the six-month probationary period for any reason.” It also said, “you will have no entitlement to common law notice of termination. If in the circumstances, the Employment Standards Act of Ontario requires notice of termination or pay in lieu of notice, it is understood that the minimum period of notice or pay in lieu of notice specified in the Act will be provided and will constitute your complete entitlement to notice or pay in lieu thereof.” The contract went on: “Employment may be terminated for cause at any time, without notice. In the event that employment is terminated for any other reason, it is understood that you will have no entitlement to common law notice of termination. However, you will be provided with notice of termination or pay in lieu thereof and, if applicable, severance pay, both in accordance with the Employment Standards Act (ESA) of Ontario or any successor legislation. With respect to notice of termination or pay in lieu thereof, it is understood that the minimum period of notice or pay in lieu thereof specified in the Act will be provided and will constitute your complete entitlement to notice or pay in lieu thereof.” What do you think about the clause’s validity? Crystal clear, right? Wrong, according to the court.

The court’s decision

The court began its judgment by setting out the general legal principles that apply to employment contracts. Underpinning everything is the proposition that an indeterminate contract of employment can only be terminated on reasonable notice. To get out of paying an employee what can sometimes amount to a lot of money at common law, the court explained, the contract must clearly stipulate that the employer is only required to comply with the minimum statutory notice provisions of the ESA. Because work is such a fundamental part of many people’s lives and identities, courts strongly resist enforcing ambiguous or unfair termination clauses against employees, who are often the more vulnerable party.

The court cited recent Ontario appellate decisions in Waksdale and Andros for the principles that employment agreements are to be interpreted as a whole, not on a piecemeal basis. To rebut the common law presumption of reasonable notice, contract clarity is critical.

Turning to the wording of the “for cause” termination provision, the court found that it meant “common law and statutory cause.” This was apparent from the inclusion of the phrase, “In the event that your employment is terminated for any other reason….” This meant that the employee’s employment could be terminated for reasons other than “for cause.” The ambiguity in the provision stemmed from the fact that it appeared to refer to terminations for and without cause in the same breath. Ultimately, it was illegal because it expanded the scope of situations where the employee could be terminated without any notice beyond what the ESA allowed, namely, only situations of willful misconduct.

As a result of these findings, the court determined that the termination clause breached the ESA, so it was invalid, and the applicant was entitled to common law notice damages. Following the usual process of considering Ms. Lamontange’s age, nature of employment, length of service and the availability of other similar employment, the court fixed the notice period at 10 months.

Takeaways for employers

The importance of contract clarity is of critical importance if an employer seeks to limit its obligations on termination to the statutory minimums. Perhaps the employer, in this case, thought that by using repetitive and clunky language, it was covering its bases. What the employer failed to appreciate was that its convoluted approach assisted the court in finding inconsistency and ambiguity. Using simple, straightforward language is often the best approach. As cases of this nature continue to accumulate, employers are running out of reasons to claim ignorance of the courts’ consistent approach to termination clauses. Be clear or be prepared to pay!

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