Employer Pays the Price for an Unclear Termination Clause

Written by Christina Catenacci, BA, LLB, LLM, PhD, Content Editor, First Reference Inc.

In September 2023, the Alberta Court of Justice decided that the employer’s termination clause in the employment contract was unclear and ambiguous. As a result, the court found that after the employee was terminated without notice, the unclear clause did not extinguish the employee’s common law entitlement and “oust” the implied term in his employment contract. The employee was indeed entitled to common law reasonable notice, and he did not fail to mitigate his damages.

What happened?

The employee had been working with the employer for about 10 years when he was terminated without cause. At that point, the employer provided the employee with an amount that was in line with both the Alberta Employment Standards Code (ESC) and his contract.

Sections 56 and 57 of the ESC set out the amount of termination notice that the employer must pay based on years of service, and requirements for pay in lieu of notice in the amount of at least equal to the wages the employee would have earned had the employee worked the regular hours of work for the applicable termination notice period.

Additionally, the employee’s contract stipulated that the employer was permitted to terminate the employee without cause as long as the ESC was complied with in terms of termination notice/pay in lieu. This was the particular wording:

“Termination without Cause: The Company may terminate employment without cause upon providing the Employee with notice as may be mandated by the Employment Standards legislation or such additional notice as the Company, in its sole discretion, may provide or, at our option, pay in lieu of such notice.”

But the employee insisted that he was entitled to reasonable notice pursuant to the common law and an implied term in his employment contract.

What did the court decide?

The court found that the termination clause did not eliminate the employee’s common law right to termination notice:

• The termination clause in the employee’s contract did not limit the employee’s right to common law reasonable notice—in fact, the contract did not clearly and unambiguously set or impose an upper limit on the employee’s notice entitlement since the clause did not state that the ESC requirements were the maximum notice to which he was entitled.
• The employer should have been clearer when drafting the termination clause in the employee’s contract if the intention was to extinguish the employee’s common law entitlement and “oust” the implied term in his employment contract.
• The effect of the termination clause was that it provided for a minimum period of notice, or such additional notice as the employer, “in its sole discretion” may provide. That is, “or such additional notice,” recognized that a period of notice extending beyond the ESC requirement.
• When there is any uncertainty in employment law (as with this case dealing with ambiguity with a contractual clause), that uncertainty is resolved in favour of the employee—an enforceable employment contract must contain clear and unequivocal language to extinguish, or limit, an employee’s common law rights.

For example, clear and unequivocal language might look something like this:

“The provision of such notice or pay in lieu of notice, benefits and severance pay constitutes full and final satisfaction of all rights or entitlements which you may have arisen from or related to the termination of your employment (including notice, pay in lieu of notice, severance pay, etc.) whether pursuant to contract, common law or otherwise.”

Additionally, the court reviewed the Bardal factors and concluded that the employee was entitled to 10 months’ reasonable termination notice:

• He was 33 years old when terminated.
• The employer was the employee’s only employer.
• The employee had restricted employment duties working as an engineering technologist (he was working on an approved reduced schedule basis, and he wished to continue working on a reduced schedule).

As well, the employee did not fail to mitigate his damages. Although the employee’s mitigation efforts were “conducted in rather a leisurely manner” (he took over three months to do his resume), the employer did not discharge its onus and show that the employee did not take reasonable steps to mitigate his losses—the court did not receive any evidence that there was comparable employment of any nature available to the employee.

Finally, the employee was awarded damages calculated at 30 hours per week at a salary of $38.70 per hour, for a 10-month period, less amounts paid by the employer. Thirty hours per week was based on the agreed 25-hour workweek. The employee was also entitled to the year-end bonus and fitness allowance.

What can we take from this decision?

As can be seen with this case, unclear termination clauses in an employment contract are interpreted in the favour of the employee. Therefore, the main lesson that we can take from this case is for employers to ensure that they have created a clear and unambiguous termination cause.

More specifically, an enforceable employment contract must contain clear and unequivocal language to extinguish or limit an employee’s common law rights. Employers are recommended to ask an employment lawyer to review their contract and make sure that it is in line with the court’s example provided in this case.