Williams HR Law LLP

THE BENEFIT OF PROVIDING FOR BENEFITS IN THE TERMINATION PROVISIONS OF YOUR EMPLOYMENT AGREEMENTS

August 10, 2016

[vc_row][vc_column width=”1/3″][vc_single_image image=”185″ img_size=”full”][/vc_column][vc_column width=”2/3″][vc_column_text]June 2016 saw the Ontario Court of Appeal (the “ONCA”) add an additional layer of complexity to the drafting of effective employment agreements upon the release of its decision

in Oudin v Centre Francrophone de Toronto. In that decision, the ONCA affirmed a lower court’s decision to uphold the termination provision in an indefinite term employment contract despite its violating the Employment Standards Act, 2000 (the “ESA”).

The Facts

Le Center Francophone de Toronto, Inc. (CTF) employed François Oudin as the Project Manager in charge of developing a cultural publication beginning on December 7, 2000. As with many employment contracts, the agreement between CTF and Oudin sought to limit the organization’s liability towards Oudin in the event that his employment was terminated without cause by limiting his right to notice of termination to fifteen days or the amount prescribed by the ESA. It also incorporated a severability clause that included curative language so that any provisions that were found to be contrary to law would be altered only to the extent necessary to make the agreement compliant.

A decline in the publication’s advertising revenue eventually prompted CTF to simultaneously cease its production of the publication and terminate Oudin’s employment.  CTF adhered to the terms of the employment contract by offering Oudin his minimum ESA entitlements of 21 weeks of combined severance and termination pay.

Oudin nonetheless opted to pursue CTF in court with the hope of securing pay in lieu of notice in accordance with his common law entitlements. The most concerning of Oudin’s many allegations was that the termination clause CTF relied upon was actually unenforceable because it failed to reference what would happen to his benefits during the notice period. If the judge were to agree with him, the company may have been liable for an amount of common law notice of dismissal several times greater than what they would have had to pay under the employment agreement as it was drafted.

The Decision

Justice Dunphy of the Superior Court readily disposed of Oudin’s various assertions. While particular language in the contract was found to violate the ESA because it did not explicitly mention Oudin’s benefit entitlement, the severability clause was cited as an authority to modify the offending provision so that the provision remained effective. The Superior Court held that the termination provision was enforceable by making a determination as to the intention of the parties by examining the language they used in the relevant provisions within the broader context of the overall contract. In applying that basic rule of contractual interpretation, the Superior Court determined that it would be “hard to imagine any fair-minded, objective person concluding that the agreement as drafted allowed for any other outcome.”

That conclusion essentially upended the understanding shared by many employment lawyers and human resources professionals of the requirements of enforceable termination provisions, as it had long been commonly assumed that the parties’ intentions were irrelevant. The common understanding was that in order to protect employees, courts would consider termination provisions that failed to reference the full scope of the employee’s entitlements (including the continuation of benefits) to be unenforceable and instead grant common law notice of dismissal. However, Justice Dunphy simply determined “that is not the law.”

The Ontario Court of Appeal

Unsurprisingly, Oudin appealed the decision to the ONCA, where he argued that the Superior Court judge had mistranslated his employment agreement from French to English and that the determinations made in the Court below were therefore incorrect. While many human resources lawyers anticipated that the Court of Appeal would take the opportunity to address the trial judge’s surprising departure from the community’s understanding of the law, they instead endorsed his rationale and analysis in a brief decision. There was no mention of any of the prior case law that had been consistently followed by lower courts in recent years that required termination provisions to mention benefits in order to be enforceable.

Implications

The ONCA’s decision is a tentative win for employers. There had been a real willingness on the part of lower courts to rule that under-inclusive termination provisions were unenforceable, and that employees subject to them were actually entitled to common law notice of termination (which, again, is often far in excess of what the ESA provides for). While the ruling seems to suggest that previously unenforceable termination provisions may be curable, it remains to be seen whether lower courts will apply the decision to uphold termination provisions that do not reference benefit continuation in the future.

While the decision appears to bolster the position of an employer that relies on an under-inclusive termination clause, the most prudent thing an employer can do is continue referencing all ESA entitlements when drafting employment agreement termination provisions.

 

This blog is provided as information and a summary of workplace legal issues.

This information is not intended as legal advice.

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