Employers Cannot Use Saving Provisions to Contract Out of Employment Standards Legislation
A recent Ontario Court of Appeal decision stated that saving provisions in termination clauses cannot save employers who attempt to contract out of employment standards legislation’s minimum standards.
The employee began working for the employer in May 2010.
They entered into an employment agreement on May 6, 2010 (the “2010 Agreement”). The employee started as a regional sales manager with a base salary of $67,000 and entitlement to sales commissions.
On August 22, 2012, the employer sent the employee a new employment contract (the “2012 Agreement”) that transferred him to a project management role. The new salary was $82,500 with benefits and a potential bonus entitlement up to a maximum of 20 per cent of his base salary. There was no commission component in this second contract.
Prior to signing the 2012 Agreement, the employee received advice from a lawyer and discussed the contract with his brother-in-law, who was an in-house counsel at a corporation. The employee signed this contract on August 29, 2012.
Both the 2010 Agreement and the 2012 Agreement included the same termination clause. Part of the clause stated that:
“In the event the minimum statutory requirements [under the Employment Standards Act (the “ESA”)] as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the notice or payments in lieu of notice contemplated under this agreement. […] Benefits shall cease 4 weeks from the written notice.”
The first part of the clause, which states that any greater benefit under the ESA will prevail, is called a “saving provision”.
The employer terminated the employee without cause on February 12, 2014. The employee commenced an action against the employer, seeking damages for wrongful dismissal and the payment of a significant amount in commissions he claimed the employer owed him.
The employer moved first seeking the dismissal of the action or, in the alternative, judgment against the employer in favour of the employee in the amount of $16,560.
The employee brought a cross-motion seeking an order for partial summary judgment on his claim for damages for lost wages based on a reasonable notice period.
Lower Court Decision
The motions judge granted partial summary judgment for the employee on the issue of the enforcement of the termination clause. He found the termination clause to be void and unenforceable for the following reasons:
“This final sentence [“Benefits shall cease 4 weeks from the written notice”] is clearly either ambiguous as it flies in the face of the rest of the provision or it is an attempt to contract out of the minimum standards under the ESA by limiting benefits to four weeks regardless of the term of employment.”
Accordingly, applying common law principles, the motions judge determined that the employee was entitled to five months’ reasonable notice of his termination.
The employer appealed.
The issue on appeal was whether the motions judge erred by holding that the termination clause was void and unenforceable.
Court of Appeal Decision
The Court of Appeal agreed with the motions judge that the termination clause was void at the outset, stating that, on its face, the termination clause contravened the notice provisions of the ESA. It found that the part of the termination clause that stated “Benefits shall cease 4 weeks from the written notice” contravened the ESA, explaining:
“The employment contract was for an indefinite period. As such, the benefit period needed to run for a minimum of eight weeks to comply with the outermost eight-week minimum statutory notice period: ESA, s. 57(h). It did not. It is therefore void and unenforceable.”
Additionally, the court found that the termination clause was ambiguous, and the ambiguity was not erased by the saving provision.
The court stated that when the employee signed the 2012 Agreement, he could not have known with certainty whether the minimum statutory requirements would apply to the four-week benefits period, especially if he were terminated after four (or more) years of employment. Accordingly, the court found that the final sentence of the termination clause was ambiguous and therefore void and of no effect.
Finally, the court stated:
“In this context, saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards. Holding otherwise creates the risk employers will slip sentences, like the four-week benefits clause, into employment contracts in the hope that employees will accept the terms. This outcome exploits vulnerable employees who hold unequal bargaining power in contract negotiations. Moreover, it flouts the purpose of the ESA – to protect employees and to ensure that employers treat them fairly upon termination.
While employers are entitled to contractually amend the ESA’s notice requirements, as long as they respect the minimum standards, they are not entitled to offend them.”
As a result, the court dismissed the appeal.
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 harassment and termination. 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.