In the decision of North v. Metaswitch Networks Corporation, 2017 ONCA 790, the Ontario Court of Appeal (“ONCA”) reaffirmed the previous court decision that a termination clause is void if it attempts to contract out of any provisions of the Employment Standards Act (“ESA”). It also ruled that a severability clause cannot save an otherwise invalid termination clause in an employment contract.
Doug North’s (“North”) employment with Metaswitch Neworks Corporation (“Metaswitch”) was governed by an employment contract. A termination clause in the contract stipulated that Metaswitch could terminate North without cause upon providing him with notice in accordance with the provisions of the ESA. However, it also provided that any payments owing to North “shall be based on Base Salary, as defined in the Agreement”. North’s compensation consisted of base salary and commissions.
The Appellant North took the position that the termination provision was void, because the part of the provision that provides payment to be based on base salary contravened the ESA by excluding his commissions. On the other hand, the Respondent argued that the severability clause in the employment agreement could save the balance of the termination provision and leave it in force. The Application judge sided with the Respondent and ruled that the severability clause of the employment contract could save the termination clause that contravened the ESA.
On appeal, the ONCA ruled that the application judge erred in her approach to the interpretation and application of the severability clause. The Court ruled that “where a termination clause contracts out of one employment standard, the Court is to find the entire termination clause to be void, in accordance with s.5(1) of the ESA. It is an error in law to merely void the offending portion and leave the rest of the termination clause to be enforced” (para.24). As a result, the application judge erred in law by severing only the offending portion that referred to using the base salary only as calculation of pay in lieu and leave the reminder of the termination clause in force. The Court noted that the correct approach is “to first assess the termination clause to see whether there is any contracting out of an employment standard. If there is, then the termination clause is void, and there is nothing to which the severability clause can be applied” (para. 41).
In this case, the ONCA noted that if the drafted termination clause is void because it attempts to contract out of any provision of the ESA, there is nothing on which the severability can act. The Court further noted that this conclusion does not make the severability clause void. It continues to have application to the rest of the agreement but just not the clauses that have been made void by statute.
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.