Employers include termination clauses in the employment contracts to limit employees’ termination entitlements once they are dismissed from work. However, if a termination clause provides for less than statutory minimum under the Employment Standards Act (“ESA”), it is unenforceable. Employees are thus entitled to reasonable notice or pay in lieu of notice at common law, which is typically greater. As a result, employers often incorporate saving provisions in termination clauses to shield them from unenforceability. However, these saving provisions do not always save the day.
In the decision of Rossman v. Canadian Solar Inc., 2019 ONCA 992, the Ontario Court of Appeal (“ONCA”) ruled that if the employer has attempted to contract out of the minimum standards in the ESA through the inclusion of a termination clause, a saving provision cannot cure an otherwise unenforceable termination clause and make it enforceable.
Noah Rossman (“Mr. Rossman”) commenced his employment with Canadian Solar Inc. (“Canadian Solar”) in 2010. He first started as a regional sales manager and signed his first employment contract. In 2012, Mr. Rossman got promoted to a project management role and signed a new employment contract.
Each employment contract included the same termination clause with a saving provision, which reads, “In the event the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the notice or payments in lieu of notice contemplated under the agreement”. However, the termination clause also stipulated that Mr. Rossman’s “benefits shall cease 4 weeks from the written notice”. Mr. Rossman was terminated without cause on February 12, 2014 and commenced an action against Canadian Solar seeking for damages for wrongful dismissal.
The motion judge ruled that the termination clause was void and unenforceable because it was either ambiguous or an attempt to contract of the minimum standards under the ESA by limiting benefits to four weeks regardless of the term of employment. The motion judge determined that Mr. Rossman was entitled to five months’ reasonable notice. Canadian Solar appealed the decision of the motion judge to the ONCA.
The ONCA agreed with the motion judge and ruled that the termination clause was either void at the outset or contained genuine ambiguity that made it void and unenforceable. The Court found that the termination clause was void at the outset, because the four-week benefits clause contravened the notice provisions of the ESA. The employment contract was for an indefinite period, and therefore the benefit period needed to run for a minimum of eight weeks to comply with the minimum statutory notice period: s. 57(h). In addition, the Court ruled that the termination clause is ambiguous and the ambiguity is not erased by the saving provision, since the four-week benefit clause is not future facing, nor does it express an intention to conform to the ESA. Therefore, the ONCA dismissed the appeal of Canadian Solar.
In this case, the ONCA noted that saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards.
For employers, it highlights the importance of having well-drafted termination clauses in their employees’ employment contracts. Employers should make sure that the termination clauses do not contract out of the ESA minimum standards. Therefore, it is advisable for employers to seek legal opinions when it comes to drafting employment contracts.
It is also strongly recommended that employees should consult an employment lawyer after termination so that they can know whether the termination clause in their employment contracts is enforceable and has limited their termination entitlements to statutory minimum under the ESA.
If you are experiencing any issues in regard to your employment contract, Top Toronto employment lawyer, Stacey Ball can help you determine your legal options. Please call us at 416-921-7997, extension 227.