Many are not aware that the employment relationship between an employer and employee is a type of contract
Employment contracts in Canada and Ontario are often much more complicated than most contracts, since special employment law imposed rules are grafted upon them. See Slater v. Sandwell(1994), 5 C.C.E.L. (2d) 308 (Ont. Ct. (Gen.Div.) and Machinger v. HOJ(1992), 91 D.L.R. (4th) 491 (S.C.C.). An employment contract exists between an employee and employer, even if it has never been placed into writing. Employment contracts are important because they let the parties determine specific terms and conditions that will govern the employment relationship. Due to the special nature of employment contracts, not all terms of the contract are enforceable by operation of law. Often employment agreements contain clauses that are not binding on the employee or the employer. Examples include improperly drafted termination provisions and other unfair or “unconscionable” terms.
Reasonable notice is a very important concept in employment law. As explained in the article titled “Wrongful Dismissal and Just Cause”, an employer can terminate a non-unionized employee for almost any reason that is not discriminatory or reprisal against the employee. However, an employee who is terminated for “just cause”, meaning they are guilty of wilful misconduct, disobedience or neglect, is not entitled to notice of termination or pay in lieu of notice under the Employment Standards Act. If an employee is terminated without cause, the employer must provide the employee with the appropriate notice of termination, or pay in lieu of notice of termination. At the very least, the employee is entitled to the minimums contained in the Employment Standards Act. However, the employee can seek common law reasonable notice, which usually works out to a higher amount.
Employment Standards Act
In an effort to limit paying more termination pay, employment contracts often include a termination provision, which will limit the amount of termination or severance pay that the employee is able to receive. If done properly, the termination provision can displace the presumption of common law reasonable notice that an employee would otherwise receive. However, a termination provision must be unequivocal, explicit and found to be a valid term of the employment agreement for this to occur. Technical violations of employment standards legislation like the Employment Standards Act can render harsh termination provisions void. The result of this can be very dramatic. Contracts which purport to limit statutory severance to a few weeks can be declared illegal, with common law reasonable notice of several months being substituted by the court.
Recent cases in this regard include decisions such as: Miller v A.B.M. Canada Inc. 2014 ONSC 4062; Wright v. Young & Rubicam Group of Companies, 2011 ONSC 4720 and Stevens v Sifton Properties Ltd., 2012 ONSC 5508. In order to be valid, termination provisions must acknowledge the minimum notice periods that are set out in the Employment Standards Act, among other requirements. General contract law principles such as unconscionability, undue influence and duress also apply to employment contracts and termination provisions. Please note that the above information does not constitute legal advice. It is general information about the law. If you require legal advice and assistance in an employment matter, please contact the experts at Ball Professional Corporation.
Canadian Employment Law
Mr. Ball is author of the authoritative and definitive text Canadian Employment Law - published by Canada Law Book (a division of Thomson Reuters). The text is used and cited by lawyers, law schools and judges across Canada.
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