Yet Another Reminder on the Importance of Careful Drafting of Termination Clauses…

by Dentons
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As if employers needed one, we now have yet another decision invalidating a termination provision for failure to comply with the Employment Standards Act, 2000 (the “ESA”): Miller v. A.B.M. Canada Inc., 2014 ONSC 4062 (CanLII).

Mr. Miller applied for and obtained the position of “Director, Finance and Business Process Improvement”.  Prior to commencing employment, he had signed an employment contract, which contained the following elements of “remuneration”:

  • A base salary of $135,000 per year;
  • Pension contributions up to a maximum of 6% of base salary; and
  • A car allowance of $680 per month.

The employment contract contained the following provision in respect of termination without cause:

“Regular employees may be terminated at any time without cause upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation.”

Mr. Miller commenced employment on September 1, 2009 and was dismissed on a without cause basis on January 26, 2011. The primary issue was whether the termination provision limited Mr. Miller’s entitlement to the ESA minimum (two weeks), or whether he was entitled to common law pay in lieu of notice.

After examining the clause and considering case law (including Wright v. Young and Rubicam Group of Companies and Stevens v. Sifton Properties Ltd.), the Court came to the following conclusions:

  • the length of the notice period in the contract, being “the minimum period of notice prescribed by applicable legislation”, was effective to rebut the presumption of reasonable notice according to common law, and as such (provided the remainder of the contract was valid), the amount of notice was legitimately established in the contract as being the ESA minimum; but                                     
  • the contract breached the ESA requirement that if pay in lieu of notice is provided, all benefits must be continued.  The contract only required the payment of “salary” in lieu of notice. The failure of the contract to require payment of the 6% pension contribution and the car allowance rendered the clause contrary to the ESA, and void for all purposes, such that Mr. Miller was entitled to common law pay in lieu of notice.

The Court also made the observation (although technically this was not a required part of the decision and would be considered obiter), that the wording of the provision at issue will determine whether it is enforceable, rather than the actual actions of the parties.  In other words, if a provision is unenforceable because it does not comply with the ESA in some respect, the fact that the employer does actually comply with the ESA will not render the provision at issue enforceable.

Interestingly, the Court held that although the termination provision was invalid, Mr. Miller “cannot escape bearing some responsibility for the fact that both parties entered into a contract which fell below ESA standards”, which seems to suggest that the Court still considered the contract when assessing the common law notice period. Ultimately, after considering Mr. Miller’s age (39), length of service (17 months) and position (Director, Finance and Business Process Improvement), the Court awarded three months of pay in lieu of notice at common law.

Mr. Miller thus received three months of pay in lieu of notice, rather than the minimum two weeks pursuant to the ESA.  This case stands as yet another reminder that termination provisions must be carefully drafted to meet the ESA in every respect, or they will be subject to attack, resulting in the employee potentially being entitled to common law pay in lieu of notice.

Miller v. A.B.M. Canada Inc., 2014 ONSC 4062 (CanLII)

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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