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Enforceability Of Termination Clauses In Employment Contract: How Canadian Courts Are Interpreting The Employment Standards Act (Esa) Guidelines On Employment Termination Clauses

Enforceability of Termination Clauses in Employment Contract: How Canadian Courts are interpreting the Employment Standards Act (ESA) Guidelines on Employment Termination Clauses

The termination clause is an essential passage in any employment contract, as it defines the conditions under which the contract can be terminated. Not only this, but it also entails the legal procedure through which the contract will be terminated.

Termination clauses are an integral part of an employment contract, as they inform employers of the costs associated with employee termination.

Truth be told, drafting termination clauses can be challenging, so it’s wise to have an employment lawyer review them. This step is crucial to avoid escalating damages, where a mere eight weeks of termination payments could potentially balloon into eight months.Top of Form

Additionally, the employers, upon the termination of the employees, are also required to comply with the common law along with the employers’ statutory obligations under the Employment Standards Act, 2000 (“ESA”). Employers are required, by common law, to provide sufficient and reasonable notice of termination or payment in lieu of notice. This is substantially greater than the ESA’s minimal requirements.

For instance, an extended worker can be awarded up to twenty-four months’ worth of pay and benefits. The amount due under common law cannot be calculated with a simple equation. Multiple considerations must be taken into account while making a case-by-case decision. Therefore, upon termination, its precise length or amount becomes another point of contention.

How Termination Clauses In Employment Contracts Are Enforced In Courts?

In light of the recent case law Waksdale v. Swegon North America Inc. with regard to the interpretation of termination provisions in an employment contract, the Ontario Court of Appeal held that contract terms must be read in their whole, along with any termination clauses. Through this logic, the Court invalidated a for-cause termination clause that would have otherwise been enforceable because it did not adhere to the Employment Standards Act (“ESA”).

In Machtinger v. HOJ Industries Ltd., the Supreme Court of Canada reinstated the significance of providing entitlement to the employee, if any in the termination clause, not to be less than the statutory minimum in the employment standards legislation. If the employer pays less than the standardly specified regulations, then such a clause will be struck down at once.

Additionally, in the case of Dodich v. Leisure Care Canada., it has been laid down that termination clauses are required to be expressed clearly and unequivocally, any ambiguity would otherwise favor the employee.

Another common issue is the insertion of a termination clause into a pre-existent employment contract. The courts have repeatedly interpreted that a termination clause cannot become a part of the employment contract until and unless certain conditions are met. These conditions were listed in para. 61 of Braiden v. La-Z-Boy Canada Limited as:

  • The employer must inform the employee regarding the modification in the employee employment contract in a simple and understandable manner.
  • The employee is fully aware that his/her legal right to receive reasonable notice of termination will be waived off;
  • and the employees are entitled to consideration in return for giving up that right.

Last but not least, keep in mind that courts will indeed try to interpret a contract in a manner that gives respect to the parties’ intent as observed in Rahman v. Cannon Design Architecture Inc. where the decision turned out to be in the employee’s favor because she had pre-hire legal advice with respect to her employment rights therein.

Above everything else, it is highly recommended to be upfront with employees on the meaning of termination clauses and how those clauses may influence their rights.

Contact The Lawyers At Ayaz Mehdi Professional Corporation

If you require any assistance pertaining to termination clauses in your employment contract, please get in touch with our employment lawyers at Ayaz Mehdi Professional Corporation.

Disclaimer: Kindly note that sending or receiving information through this site does not establish a solicitor-client relationship. Legal matters are fact-specific, and the law is variably changing. The views expressed and the content provided on this blog are general guidelines and cannot substitute for proper legal advice. Schedule your legal consultation by clicking here: Let’s meet!


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