Have you reviewed your termination provisions lately? Failure to provide statutory benefit continuation could render them unenforceable.

While parties to an employment agreement can always agree to terms limiting an employee's entitlements upon cessation of the relationship, it is established law that they cannot contract out of the minimum standards and entitlements provided in the Employment Standards Act, 2000 (the "ESA").  Accordingly, unless a termination provision provides equal or greater entitlements than the Act, it will be found to be void and the employee will be entitled to "reasonable notice" at common law (i.e., the notice established by precedent cases in the courts). 

The recent decision of the Ontario Superior Court of Justice in Miller v. A.B.M. Canada Inc. has again highlighted the importance of a well-crafted termination provision.  Miller was hired by A.B.M. in September 2009, as its Director, Finance and Business Process Improvement.  He signed an employment agreement describing his compensation, benefits, and other terms and conditions of his employment.  Among those provisions was the following termination clause:

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.

Miller was offered four (4) weeks' pay in lieu of notice upon his termination in 2011, but the offer was subject to his signing a release of all claims against A.B.M.  The plaintiff declined the offer, and commenced an action for wrongful dismissal.  A.B.M. asserted that Miller was only entitled to two (2) weeks' pay upon his termination, pursuant to the ESA (the "applicable legislation"), but Miller argued that the provision was unenforceable and that he should receive common law notice of dismissal. 

The focus of the Court's analysis was on whether the provision should be enforced.  Justice Glithero reviewed the relevant provisions of the Act, including section 61(1), which provides:

61.  (1)  An employer may terminate the employment of an employee without notice or with less notice than is required under section 57 or 58 if the employer,

(a) pays to the employee termination pay in a lump sum equal to the amount the employee would have been entitled to receive under section 60 had notice been given in accordance with that section; and

(b) continues to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive.

While the termination provision directly addressed the plaintiff's entitlement to "salary" in lieu of the statutory notice, it did not provide for benefits continuation during the statutory notice period.  Both pension contributions and car allowance were not included within the meaning of "salary" in the contract.  Accordingly, the agreement did not provide for an entitlement equal to the ESA, as these elements of the compensation package were not included in the termination entitlement as they would have been under the Act.  Based on this deficiency, the Court concluded that the provision was unenforceable and did not "rebut the presumption" that the employee was entitled to reasonable notice. Based on the relevant factors, the Court awarded Miller pay in lieu of three months' reasonable notice (less the statutory amount the employer had already been paid).

Employers and employees alike should turn their minds to the termination language in the employment agreement before employment starts.  Unless the language of the agreement will provide the minimum entitlement (including benefits continuation), there is no advantage in incorporating a termination provision at all.  For employers, it is recommended that existing contracts should be reviewed periodically for compliance with the ESA to avoid any unpleasant surprises at the time of termination.

Need help drafting termination language for employment agreements, or advice on the enforceability of existing provisions?  Contact Lance Ceaser for assistance.

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UPDATE:  The decision in Paquette c. Quadraspec Inc. has just come to my attention in which reasonable notice was also found to apply where the termination clause did not provide for benefits continuation during the statutory notice period.  In addition this new decision (available here in French only) also found that an employer's total payroll, not just its Ontario payroll, should be considered in determining whether it meets the $2.5 million threshold for employee entitlement to statutory severance pay.  When the employer's total payroll, including its operations in Quebec, was assessed, it was determined that statutory severance was payable to the employee.