Termination Clauses: Getting It Right!

HRPA – York Region ChapterJanuary 29, 2016

Presented byStuart E. Rudner

Termination Clauses: Getting it Right!

2

Overview1. Why are contracts important?2. Why use termination clauses?3. Why are they so hard to enforce?

- Recent Case Law4. How to do it properly

1. Enforceable employment agreement2. Enforceable termination clauses

5. Review agreement template

Contracts

4

Why Use Contracts? Increase rights & flexibility Control costs Avoid uncertainty & cost of common

law “reasonable notice” of dismissal– Reduce Need for Lawyers (especially at

termination) Customize to your needs Protect corporate interests Restrict post-employment conduct

5

Common Myths Every employee has a probation period during

which they can be dismissed without notice or cause. 

Unless a contract states otherwise, employees are only entitled to the Employment Standards Act minimum amounts of notice / severance 

Termination clauses are not enforceable

6

Contracts Use them for ALL employees

– Not just management No boilerplate Customize for different people / positions Consider needs & wants

What can you include?– Term (fixed term or otherwise)– Duties (maintain flexibility)– Probation – Hours of work– Remuneration and benefits (maintain

flexibility)– Vacation– Acceptance of policies– No conflicting obligations

– Conflict of interest– Confidentiality– Expenses– Social Media– Layoffs– Discipline– Dismissal– Jurisdiction – Restrictive Covenants

Doing it properly– Before there’s already an agreement– With consideration– Explained and understood– Independent legal advice

10

Consideration Trusty Francis v CIBC – consideration is

critical Before there’s already an agreement –

offer of employment is consideration If it’s too late (offer already made, worker

already hired or already working):– Need fresh consideration

11

What is Consideration“Something of value” Promotion Raise Bonus New benefits Cash payment Vacation

12

Why Use Termination Clauses?

13

Dismissals Without Just Cause

Can let be go any time Must provide Notice of Dismissal or

Pay in Lieu Sources of entitlement

– Employment Standards legislation– Common Law

You Can contract out of common law

14

Statutory Notice RequirementsLength of Employment Notice Required

Less than 3 months None

3 months but less than 1 year 1 week

1 year but less than 3 years 2 weeks

3 year but less than 4 years 3 weeks

4 year but less than 5 years 4 weeks

5 year but less than 6 years 5 weeks

6 year but less than 7 years 6 weeks

7 year but less than 8 years 7 weeks8 years or more 8 weeks

Also severance pay if certain circumstances

15

Common Law: How Much Notice?

Requirement: “reasonable” notice The Bardal Factors 1) Length of service2) Age3) Position / Character of Employment4) Availability of Similar Employment

16

What is “reasonable”? No “rule of thumb”

– Length of service is not only factor Beware the short-term employee Watch out for Inducement Factors are always evolving

17

Reasonable Notice Periods

0

0.5

1

1.5

2

2.5

3

.6 to 2.5 2.6 to 5 6 to 10 11 to 15 16 to 20 21 and25

26 and30

31 and35

36 and40

Years of Service

Months Per Yr. of Service

18

0-2 Years of ServicePosition Average Mons. Mons. Range

Clerical 2.82 .2-12

Supervisory 3.67 .2-9

Sales 3.54 .01-15

Lower Mngmnt 3.42 1-10

Upper Mngmnt 6.76 3-12.75

19

17-19 Years of ServicePosition Average Mons. Mons. Range

Clerical 10.58 6-15

Supervisory 12.63 9-16

Sales 13.67 8-18

Lower Mngmt 13.38 7-24

Upper Mngmnt 18.14 12-24

20

Termination Clauses: CASE LAW

21

MANY recent cases Case law is largely unsettled &

evolving Formerly “good” clauses may be

unenforceable Courts favour unambiguous and

clearly worded provisions Just because employee signed does

not mean you are in good legal position

22

Main Points

Courts will enforce termination clauses

Even if they are “harsh” BUT will find any excuse not to

– Ambiguity– Breach of employment standards– Lack of consideration– Duress / lack of independent legal

advice

23

An employee may contract-out of his or her common law entitlements upon a wrongful dismissal, but this can only occur by clear, express and unambiguous language in the employment contract that rebuts the common law presumption that an employee can only be terminated on reasonable notice: Christensen v. Family Counselling Centre of Sault Ste. Marie & District, [2001] O.J. No. 4418 (Ont. C.A.); Machtinger v. HOJ Industries Ltd. (1988), 66 O.R. (2d) 545 (Ont. C.A.).

24

Benefits must be addressedClause: “Agree to accept

notice/payment in lieu and/or severance in satisfaction of all claims which may arise out of statute of common law

Clause Upheld?

No

Reasoning: Clause attempted to “draw the circle” around rights and didn’t mention continuation of benefits

Stevens v. Sifton Properties Ltd. (2012)

25

Termination Clause Upheld

Dimson v. KTI Kanatek Technologies Inc.The Clause18(c)   In addition, KANATEK may terminate this Agreement at its sole discretion for any reason, upon providing Employee all payments or entitlements in accordance with the standards set out in the Ontario Employment Standards Act, as may be amended from time to time.

18(d)   If at any time KANATEK provides you with a bonus, it will not be included in the calculation of payment for the purpose of this Article or as otherwise agreed to or required by the Employment Standards Act.

26

Dimson v. KTI Kanatek Technologies Inc.The Decision

[6] We agree with the motion judge’s observation that it would be inconsistent to interpret 18(d) as denying the appellant his entitlement under the ESA when 18(c) expressly provides that the appellant would be provided with everything to which he was entitled under the ESA.

27

Termination Clause Struck Down

Wright v. The Young and Rubicam Group of Companies (Wunderman)

The Clause“Payment will be inclusive of all notice, statutory, contractual and other compensation and statutory severance and termination pay you have…and no other severance, separation pay or other payments shall be made”

28

The Decision

The clause evinced an intention “to treat the payment of base pay under the termination provisions as the totality of the employee’s

entitlements to compensation on termination, regardless of whether the contractual provisions

met the statutory minimum or not.”

Wright v. The Young and Rubicam Group of Companies (Wunderman)

29

Miller v. Convergys CMG Canada Ltd. Partnership (BCCA)

Clause: ESA Minimum Notice on Termination + Probationary Period for each time employment contract renewed

Clause Upheld?

Yes

Reasoning: No intention of employer to contract out the ESA

30

Brown v. Utopia Day Spas and Salons (BCSC)

Clause: Employer may terminate employment without cause or notice in accordance of ESA (BC)

Clause Upheld?

Yes

Reasoning: Reference to Act incorporated it into the contract; minor grammatical errors in clause do not create material ambiguity so long as parties/intentions were discernable

31

Miller v. ABM Canada Inc. (ONSC)Clause: Dealt with notice period but

did not address pension contribution or car allowance

Clause Upheld?

No

Reasoning: Language in clause was sufficiently ambiguous as to true extent of employee’s ESA entitlement that it had to be construed against the employer

32

Hosford v. Warren Gibson Ltd. (ON SCSM)

Clause: “Your employment may be terminated for just cause at any time without notice. Any other termination will be made in accordance with Labour Canada Standards.”

Clause Upheld?

No

Reasoning: No such thing as Labour Canada Standards; ambiguous clause failed to rebut presumption of reasonable notice

33

Leeming v. IBM Canada Ltd. (ONSC)

Clause: Two weeks’ notice or ESA entitlement if dismissed between 3 and 5 years; >5 years = ESA or 3 weeks notice – whichever greater

Clause Upheld?

No

Reasoning: Not sufficiently clear, express or unambiguous to deny common law notice entitlement

34

Oudin v. Le Centre Francophone de TorontoClause: Employer may terminate the

employment of the employee for all serious incidents (negligence, continuing incapacity, breach of confidentiality)

Clause Upheld? Yes

Reasoning: “Continuing incapacity” is an invalid ground for termination, but does not render the whole clause invalid

35

Howard v. Benson Group Inc. (ONSC)

Clause: Employment may be terminated at any time by the Employer and payments will be made according to ESA

Clause Upheld?

No

Reasoning: Language in clause was sufficiently ambiguous as to true extent of employee’s ESA entitlement that it had to be construed against the employer

36

Mlotek v. York-Med Systems Inc. (ONSC)

Clause: New contract signed by employee in 2011 included clause focused on “entitlement” (singular); Argued to be ambiguous

Clause Upheld?

Yes

Reasoning: Word “entitlement” when read with the rest of the clause found to be interpretable in the plural sense – no ambiguity

37

Pare and Corus Entertainment Inc. (Unjust Dismissal), Re (Canada Labour

Code)Clause: Provided for 2.5 weeks

notice, pay in lieu, or severance for each year. “In no instance will you receive less than your statutory entitlement.”

Clause Upheld?

No

Reasoning: Clause was not drawn to complainant’s attention; wording lacks certainty, is too long, and could support several different interpretations

38

DeGagne v. Williams Lake (City) (BCSC)

Clause: Employee will receive on dismissal either 1 month written notice (if dismissed during probation) or 6 months if dismissed in first year, or severance pay in amount equal to notice

Clause Upheld?

Yes

Reasoning: No ambiguity

39

Carpenter v. Brains II, Canada Inc. (ONSC)

Clause: Provide notice or salary in lieu thereof, and severance pay. No other compensation entitlement in common law or equity.

Clause Upheld?

No

Reasoning: Only mentioning “salary” was interpreted to exclude benefits/other compensation, which is contrary to the ESA

40

Getting it Right

41

Lessons to Learn Enter into contracts at time of hiringI. Make the contract the offerII. No agreement until signedIII. Do not commence onboarding

/announceIV. Adequate time to review, obtain ILAV. Confirmation of ILA or opportunity

for it

Or use consideration if later

42

Lessons to Learn Draft termination clauses clearly Ensure compliance with employment

standards Use “Saving Clauses” Invest in legal counsel now to save

time, money and risk later

43

Sample: Employment Contract

See HANDOUT

44

Termination Clauses – what to include

Probation With cause – may have to pay

statutory amounts Without cause Temporary layoff Resignation

45

Sample: Termination Clause

I. Clear and unambiguousII. Employment standards compliantIII. Address benefits

I. What will and will not continue beyond statutory period

See HANDOUT

46

Stuart E. [email protected] or 905.530.2484

Web: www.rudnermacdonald.comTwitter: @CanadianHRLaw

LinkedIn: Connect with me, join the Canadian HR Law Group and visit the

Rudner MacDonald PageBlog: Rudner MacDonald Blog

Canadian HR Law:http://www.hrreporter.com/blog/canadian-

hr-lawFaceBook: Rudner MacDonald PageGoogle+: Canadian HR Law, Rudner

MacDonald PageYouTube: Rudner MacDonald channel