The Ontario Superior Court of Justice (“ONSC” or the “Court”) has provided some encouraging news for employers with its recent decision in Bertsch v Datastealth Inc [Bertsch], which departs from a long-standing trend of employee-friendly rulings on termination clause enforceability. In Bertsch, the ONSC upheld a termination clause that limited the employee’s termination entitlements to the minimum standards outlined in the Employment Standards Act, 2000 [ESA].

Background

At the time of dismissal, the employee had worked for the employer for approximately eight and a half months. The employee’s employment agreement contained a clause (the “Termination Clause”) that sought to limit the employee’s termination entitlements to the minimum standards set out in the ESA.

The Termination Clause read as follows:

5. Termination of Employment by the Company: If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the [ESA] and its Regulations,…including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation.  You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.

You understand and agree that compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment, or pay in lieu thereof.  You further understand and agree that this provision shall apply to you throughout your employment with the Company, regardless of its duration or any changes to your position or compensation.”

A clause which purported to provide the employee with at least the minimum entitlements under the ESA (the “Failsafe Clause”) was also included, which stated:

11.(a) If any of your entitlements under this Agreement are, or could be, less than your minimum entitlements owning under the [ESA] …you shall instead receive your minimum entitlements under the [ESA]…

The employee was dismissed without cause and was provided with four weeks of pay in lieu of notice, exceeding his contractual and statutory entitlements. However, the employee filed a wrongful dismissal claim, seeking 12 months of common law reasonable notice.

The employee argued that the Termination Clause was unenforceable because its provisions were “ambiguous” and did not clearly reference the employer’s obligation to provide termination pay and severance pay in accordance with the ESA and unless the employee had engaged in “wilful misconduct, disobedience, or wilful neglect of duty”, as required by O. Reg. 288/01 under the ESA (the “Regulation”). The employee contended that the Termination Clause purported to illegally allow the employer to dismiss the employee for cause and without notice, regardless of whether there was wilful misconduct.

The employer, on the other hand, argued that the Termination Clause was clear and did not violate the ESA or the Regulation. As the facts were not in dispute, the employer filed a Rule 21 motion to have the termination provision interpreted as a matter of law and sought the dismissal of the employee’s claim on that basis.

Decision

The ONSC found the Termination Clause to be clear, unambiguous, and enforceable. While the Court emphasized that termination provisions must comply with the ESA to be valid,  there was “no reasonable alternative interpretation of the relevant clauses here that might result in an illegal outcome”.

In coming to this finding, the ONSC found that the Termination Clause’s reference to “circumstances in which [the employee] would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation” was consistent with the just cause standard of wilful misconduct outlined in the Regulation.

Additionally, the ONSC stated that the inclusion of the Failsafe Clause further clarified the employer’s intention to comply with the ESA and its Regulations, as the Failsafe Clause sought to ensure that the employee would receive at least the minimum entitlements required by the ESA.

The ONSC acknowledged a presumptive power imbalance between employers and employees that calls for courts to resolve ambiguities in the employment contract in favour of the employee. However, the Court found this factor to be irrelevant here, as the Termination Clause was unambiguous. In other words, the presumptive power imbalance will not affect outcomes where the contract’s terms are clear.

As a result of the ONSC’s decision, the employee’s claim was struck without leave to amend.

Takeaways

The Bertsch decision reminds employers that, despite prevailing trends, carefully drafted termination clauses can limit employee entitlements upon dismissal to ESA minimums. Given the ever-evolving case law surrounding termination clause enforceability, employers should closely monitor legal developments and update their employment agreements as needed.

Bertsch also teaches us that a Rule 21 motion can be an efficient approach for resolving wrongful dismissal cases where facts are undisputed, and the central issue is the interpretation of a termination clause. This process can save significant time and resources compared to prolonged legal battles.

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

This information is not intended as legal advice.