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Another Termination Clause Unenforceable Due to Breach of Legislation

Written by on May 4, 2021 in Employment Law Blog, Focus on Canadian Cases
businessman-getting-unexpected-notice-Termination-Clause-Unenforceable

By Kyle Burgis
The Ontario Superior Court of Justice found yet another termination clause to be invalid and unenforceable.

Unlike the majority of decisions which focus on the Employment Standards Act, 2000, this time the decision in Sager v. TFI International Inc. was as a result of the termination clause being in breach of the Canada Labour Code (“CLC).

Facts

After approximately 2 years and 9 months of employment, the employee’s employment was terminated without cause. As the Court states in the decision, the termination clause provided that the employer “could terminate his employment without cause by giving Mr. Sager the greater of three months’ base salary or one month base salary per year of completed service to a maximum of 12 months.” The termination clause also stated that the “payment shall be inclusive of any and all requirements”.

Upon termination, the employer provided the employee with three months’ base salary as required by the termination clause; however, the employee pursued the employer for additional common law notice on the grounds that the termination clause was “not enforceable because it fails to maintain the terms of his employment during the statutory notice period, which is inconsistent with the CLC.”

The Court’s Decision

The Court found that the termination clause was not enforceable as it violates section 231(a) of the CLC. Specifically, the Court stated:

“The termination clause of Mr. Sager’s contract intends to limit TFI’s obligation to a single lump sum payment. The clause does not say that it is intended to be inclusive of the statutory requirements for severance and termination pay only. It says the lump sum payment is inclusive of all requirements under the CLC. If the lump sum payment is treated as inclusive of all requirements under the CLC, it excludes any payment on termination for Mr. Sager’s pension, car allowance or bonus, which were all the terms and conditions of Mr. Sager’s employment. It would also exclude the continuation of Mr. Sager’s benefits during the notice period. In my view, the meaning of the agreement it clear: Mr. Sager was entitled to a payment equal to three months of his base salary and nothing more during the notice period. This amounts to a change in Mr. Sager’s terms of employment during the notice period, which is inconsistent with s. 231(a) of the CLC.”

As a result, the employee was entitled to common law notice, and was awarded 9 months of notice by the Court.

The Termination Clause Takeaway

This decision demonstrates once again the importance of having properly drafted termination clauses. Whether the employment relationship is governed by the Employment Standards Act, 2000 or the Canada Labour Code, the Court has made it clear time and time again that if any portion violates the minimum entitlements pursuant to the applicable legislation, the termination clause will be found to be invalid. This will result in an employee being entitled to common law notice, which amount can be as high as 24 months, and potentially more, depending on the relevant facts. For this reason, employers and employees should have their Employment Agreements and Hiring Letters reviewed by an Employment Lawyer.

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Please note that this article is for informational purposes only and does not constitute legal advice.

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