Mar 30, 2017

Words speak louder than action when it comes to termination clauses

Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII)

When a termination clause in an employment agreement is unclear or ambiguous, the ambiguity is generally read against the employer. In some decisions – such as Roden v Toronto Humane Society (2005), Oudin v Centre Francophone de Toronto (2016) and Cook v Hatch (2017) – the courts have found that silence might mean an implied intent to comply with the Employment Standards Act (the “ESA”) and/or that ambiguities in termination clauses can be resolved by focusing on the overall intention of the parties. However, as will be discussed, employers should always follow the best practice of having clearly worded termination clauses.

On February 23, 2017, the Ontario Court of Appeal released its decision in Wood v Fred Deeley Imports Ltd (“Wood”). An employee had brought a motion for summary judgment against her employer alleging, in part, that the termination clause in her employment agreement was unenforceable. The motion judge had dismissed the employee’s motion. On appeal, the Court of Appeal ruled that the termination clause was unenforceable and thus, the employee was entitled to reasonable notice at common law.

When an ambiguity cannot be resolved by focusing on the intention of the parties

In Roden, the termination clause was silent on benefit continuation at termination and did not expressly exclude such an entitlement. In Wood, the termination clause was similarly silent on benefit continuation at termination; however, it provided that no other payments would be made to the employee other than those provided for. The “all inclusive” language was specifically cited by the Court as the reason for differentiating between Wood and Roden. The Court did not care that the employer had actually continued the employee’s benefits – the employer’s actions could not be relied on as an indication of the parties’ intentions. Instead, the Court relied on the language of the termination clause itself and found that the wording resulted in a contravention of the ESA.

The issue of benefit continuation was enough to decide the appeal, but the Court went on to also consider the issue of severance pay. Again, the Court did not care about what severance pay the employer had actually paid out to the employee. The Court analyzed the wording used in the termination clause and found that the language used made it possible for the employer to fulfill its contractual obligations in ways that would deprive the employee of the severance pay she was owed under the ESA.

Termination clauses must be in compliance with the ESA

The Court used its decision in Wood to signal to employers that first and foremost, termination clauses need to be drafted so that they comply with the ESA. Allowing a voluntary payment to an employee that complies with the ESA to cure what would otherwise be an unenforceable termination clause does little to incentivize proper drafting in the first place. While the decision in Wood might leave it open for a court to engage in a contextual assessment of the intention of the parties where an ambiguity does not, on its face, violate the ESA, employers should be wary of relying on silence and implied terms. Best practice is for employers to ensure that termination clauses are clearly worded and to have drafting language reviewed as jurisprudence evolves.