In Bertsch v Datastealth, the ONSC affirmed the enforceability of a termination clause in an employment contract that limited the Plaintiff’s entitlements to the minimum standards under the Employment Standards Act, 2000 (ESA). In dismissing the Plaintiff’s claim for wrongful dismissal damages, the Court held that the termination clause was valid and enforceable, therefore allowing the employer and employee to contract out of the common law. This decision affirms that carefully drafted termination provisions that limit an employee’s entitlements upon termination to the statutory minimums prescribed by the ESA will be enforced in appropriate circumstances.
Summary
Facts
The Plaintiff’s written employment contract limited his rights upon termination to the statutory minimums prescribed under the ESA, therefore excluding common law notice requirements. For 8.5 months of service, the Plaintiff was given 4 weeks’ pay in lieu of notice upon termination, which exceeded his minimum entitlements under the ESA.
The Plaintiff sued the Defendant for 12 months’ pay in lieu of notice (approximately $300,000) and argued that the termination provision was not enforceable because it was ambiguous and violated the ESA. Specifically, the Plaintiff’s argument was premised on the fact that the ESA establishes a higher burden on an employer for terminating an employee without notice than under the common law. In short, the Plaintiff argued that the termination provision was void because it permitted termination for cause, without notice, regardless of whether there was “wilful misconduct, disobedience, or wilful neglect of duty” (the higher ESA standard). The termination clause at issue read as follows:
- 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.
The Defendant argued that the termination provision was clear, unambiguous, and therefore enforceable. The Defendant brought a motion under R.21.01(1) to request that the Court determine the proper interpretation of the impugned termination provision and to dismiss the Plaintiff’s claim as disclosing no tenable cause of action.
Decision
The Court held that the termination provision was valid, as there was “no reasonable alternative interpretation of the relevant clauses here that might result in an illegal outcome.” In other words, there was no other reasonable interpretation that could contravene the minimum requirements of the ESA. No ambiguity in the relevant clauses (the contractual terms are clear and unambiguous).
In reaching its decision, the Court acknowledged that the interpretation and application of termination clauses is often not a simple exercise, as the law regarding these issues is not straightforward. However, in this case the Court found that the terms of the impugned termination clause were clear and unambiguous, and therefore enforceable.
The Court also acknowledged the longstanding presumption that there is a power imbalance between employers and employees during the negotiation of employment contracts. Given this power imbalance, any ambiguities are interpreted to the benefit of employees. However, the Court held that there was no ambiguity in the termination clause, so this presumption was irrelevant to the issue before it.
The Court held that the exclusion of common law notice in this case was clear and enforceable. The Plaintiff was therefore not entitled to any additional pay in lieu of notice under the common law, so the Court struck the Plaintiff’s claim without leave to amend.
Takeaways
This decision is a reminder to employees that the language used in employment contracts matters. If a termination provision is enforceable, an employee will be deprived of their common law entitlements.
For employers, this decision affirms that well-drafted termination provisions can save costs regarding payments to employees upon termination. They can also reduce legal costs if a former employee pursues litigation against the employer.
Employers should regularly review their existing employment agreement templates to ensure termination clauses are drafted clearly and unambiguously. This is crucial, as the case law regarding interpretation and enforceability of these clauses is constantly evolving. Employers may also consider adopting the language upheld in this case going forward.
