In Andros, the Ontario Court of Appeal discussed the interpretation of a termination clause. There were discussions regarding ambiguity within the termination clause, incorporating Ontario’s Employment Standards Act (ESA) through silence, and interpreting the termination clause as a whole. Importantly, the decision in this case reinforces the principle that the entire termination clause is void if there is a portion that offends the ESA. As experienced employment lawyer Stacey Ball can help you in these situations.
General Principles of Interpreting Termination Clauses
The court mentioned a few general principles of interpreting termination clauses. First, when there is ambiguity in a termination clause, it is interpreted in favour of the employee. The minimum entitlements and obligations (including notice, payment of benefits, and severance) set out within Ontario’s Employment Standards Act (ESA) cannot be contracted out unless it is to improve upon the standard to the benefit of the employee. Finally, if there is any portion of the termination clause that violates the ESA, then the entire termination clause will be considered void (North v Metaswitch Networks Corporation, 2017 ONCA 790).
The specific termination clause being interpreted in Andros reads as follows:
The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director’s entitlement pursuant to the Ontario Employment Standards Act or, at the Company’s sole discretion, either of the following:
a. Two (2) months working notice, in which the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period.
b. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary.
The employer suggested that the reference to the ESA in the first portion of the clause worked with the phrase “greater of” to mean that the employee, even if being terminated using one of subclauses 4(a) or 4(b), would receive the ESA minimums for everything (i.e., notice, benefits, and severance) if they were greater than what were provided for in the subclauses. In other words, the unmentioned ESA aspects are incorporated into the subclauses by silence. However, the court interpreted the “or” as being exclusionary. The employee received either the ESA minimums, or one of the subclauses – not a combination. The court found that when read as a whole, the termination provision appeared to limit the minimum statutory obligations in the subclauses rather than include them. The subclauses did not incorporate the ESA through silence – the ESA minimums were isolated to the first portion of the termination clause.
As previously mentioned, where there are multiple interpretations or a lack of clarity, the court will prefer the interpretation of the termination provision that favours the employee – as is the case in Andros. The court noted that the failure of the subclauses to expressly incorporate ESA entitlements means that there is a level of uncertainty and ambiguity. The reference to the ESA in the first part of the termination provision either did not apply, or did not clearly apply to the subclauses.
The court’s discussion about “failsafe” provisions in Andros (paras 28-30) highlights the importance of careful phrasing and inclusion of such provisions. Specifically, this case demonstrates how these clauses could be “stranded” in one part of the termination provision (i.e., only apply to one part of the provision), instead of “cloak[ing] the entire termination clause” (para 30).
Stacey Reginald Ball is an experienced Toronto employment lawyer with the Ball Professional Corporation. Our office handles various employment law matters, including wrongful dismissal. If you have questions regarding the interpretation of a termination provision, please contact a lawyer for advice.