Recently, the Ontario Court of Appeal decided a case relating to the enforceability of a termination clause in a written contract of employment and whether the termination clause was ambiguous.

 The Facts

The employee began work for the employer in 2015. He had previously worked for one of his employer’s customers in the United States. Upon his hiring, the employee’s original start date with the customer of September 25, 2000 was recognized for most purposes, including severance under the termination provision of the contract of employment entered into.

In April 2016, the employee was advised that his employment would be terminated, without cause, effective in July 2016. He continued to work during that time and continued to receive benefits coverage and pension contributions. In addition to this working notice, for which he was paid, the employee received over $24,000 as a termination payment, which was equivalent to 19.4 weeks of salary.

When the employee was hired, he was subject to a written contract of employment, which included the following provision:

If you are terminated by [the employer] other than for cause, [the employer] will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your [the employer] service reference date to a maximum of twelve (12) months of your annual base salary. This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation. In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, [the employer] shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.”

The employee claimed an entitlement to pay in lieu of notice at common law based upon a notice period of 16 months calculated with his start date of September 2000.

At Issue

The employer brought a motion for summary judgment, contending that the employee’s claim for damages at common law was precluded by the termination clause in the contract of employment. The employee advanced three arguments in support of his position that the termination clause is not enforceable:

1) the termination clause violated the minimum requirements of the Employment Standards Act (the “ESA”);

2) the termination clause failed to rebut the presumption at common law that the employee is entitled to reasonable notice of termination; and

3) the employer failed to comply with the requirements of the termination clause, and was not entitled to rely on it.

The motion judge rejected the first and third arguments, but accepted the second. She declared that the termination provision was ambiguous, that it failed to rebut the common law presumption of reasonable notice, and that the employee was entitled to damages at common law. She held the clause to be unenforceable and dismissed the employer’s motion.

The employer appealed.

The Decision

On appeal, the employer sought to overturn the motion judge’s conclusion that the termination clause was ambiguous and did not clearly exclude an entitlement to damages at common law. It submitted that the motion judge erred in failing to consider the termination clause as a whole and created an ambiguity that did not reasonably exist. The employer submitted that the motion judge further erred by disregarding ordinary principles of contract interpretation and arrived at an unreasonable interpretation of the clause.

The Court of Appeal agreed with the employer, stating that:

“The fundamental error made by the motion judge is that she subdivided the termination clause into what she regarded as its constituent parts and interpreted them individually. In my view, the individual sentences of the clause cannot be interpreted on their own. Rather, the clause must be interpreted as a whole. When read as a whole, there can be no doubt as to the clause’s meaning.”

As such, the court found that the parties had clearly set out a formula for calculating the amounts owing to terminated employees. The court found that the motion judge found ambiguity where there was none and stated:

“The motion judge failed to apply well-established principles of construction. She did not interpret the termination clause as a whole; she strained to find an ambiguity where none reasonably exists; and she deviated significantly from the text of the clause. In so doing, she committed extricable errors of law that are reviewable on a correctness standard.”

As a result, the court allowed the appeal, finding the employer had complied with the termination clause, and in so doing also complied with the ESA. Therefore, the employee was not entitled to anything more. Additionally, the court ordered the employee to pay the employer’s costs, which amounted to over $20,000, in addition to his own costs of $12,500.

For Help

The Kitchener-Waterloo employment lawyers at Petker Campbell Postnikoff have many years of experience advising non-unionized employees and employers on a variety of workplace issues including termination and wrongful dismissal. Our team will walk you through the details of your dispute, advise you on your rights, responsibilities and obligations, and help you understand your options.  If your dispute cannot be settled through negotiation, we can represent you through mediation and the court process.

We represent clients throughout southern Ontario, including the communities of Cambridge, Guelph, Elmira, Brantford, Fergus, Elora and the surrounding area. Call 519-886-1204 or contact us online for a consultation.