On February 25, 2015, in the case of Miller v. A.B.M. Canada (“Miller”), the Divisional Court of Ontario upheld a Superior Court of Justice decision to strike down the termination provision of an employment agreement because it did not include all the compensation the employee was entitled to during the notice period. In Miller, the termination provision in the employment agreement was found to be contrary to the Employment Standards Act, 2000, as it only provided for salary during the notice period, but not benefits, car allowance or pension participation.
Mr. Miller (the “Employee”) was offered employment by A.B.M. Canada (the “Employer”) in July 2009, the terms and conditions of which were set out in writing. The employment agreement, including termination clause, were not drafted by a lawyer, but were cobbled together from other documents within the Employer’s possession. The Employee accepted the offer of employment six days after receiving it. The Employee’s employment with the Employer was later terminated without cause.
The January 26, 2011 letter of termination stated that the Employee was entitled to two weeks’ salary in lieu of notice, including car allowance and a reference letter. The termination letter also offered an “enhanced separation offer” open for one week, consisting of four weeks’ salary plus car allowance “as a sign of good faith and in order to assist you while you seek alternative employment…” The Employee did not accept the enhanced offer and was not paid his car allowance or pension contributions.
At Trial, the Judge analyzed s. 61(1) of the Employment Standards Act, which permits termination without advanced notice as long as the employer pays the amount the employee would have been entitled to during the notice period based on total compensation, including benefits. If done properly, this will limit an employee’s entitlements to statutory notice only and will eliminate the employee’s entitlement to common law notice in addition to statutory notice. However, the Trial Judge determined that the termination clause in the employment agreement provided for termination without payment of car allowance, pension and benefits over the statutory notice period, thereby rendering the termination clause invalid contrary to s. 61(1)(a). As a result, the termination clause was void and incapable of displacing the common law presumption that the Employee was entitled to a reasonable period of notice according to common law principles.
The Employer appealed this Trial Judge’s decision to the Divisional Court, seeking to overturn the Trial Judge’s decision and have the termination clause in the employment agreement upheld.
The Divisional Court dismissed the Employer’s appeal due to the specific wording of the termination clause in question. The termination clause stated:
“Regular employees may be terminated at any time without cause upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation.” (Emphasis added).
In a similar case relied upon by the Employer, Roden v. The Toronto Humane Society (“Roden”), the termination provisions stated:
“Otherwise, the Employer may terminate the Employee’s employment at any other time, without cause, upon providing the Employee with the minimum amount of advance notice or payment in lieu thereof as required by the applicable employment standards legislation.” (Emphasis added).
The Court determined that in Roden, unlike in Miller, the termination provision did not attempt to provide less than the legislated minimum and was therefore valid.
The key difference in wording between the two termination provisions in these two contracts are the words “payment” and “salary.” The difference is significant because “salary” was interpreted to refer to the Employee’s base salary only as defined in the employment agreement and excluding other aspects of the Employee’s compensation, specifically pension contributions, car allowance and benefits, as required by the Employment Standards Act, 2000. The word “payment” on other hand, was interpreted to include all aspects of compensation owing to the employee in the Roden decision. Due to this distinction, the termination provision in Miller was deemed invalid for violating s. 61(1)(a) of the Employment Standards Act, 2000.
Lessons for Employers
When drafting termination clauses in employment agreements, even one word may mean the difference between the termination clause being deemed to be valid or invalid. As a properly worded termination clause can also mean the difference between owing a terminated employee only statutory notice in accordance with the Employment Standards Act, 2000 or additional common law notice which can be substantial, it is critical that termination clauses are carefully drafted by an experienced Employment Lawyer. While it may be tempting for an employer to rely on old or new precedents that are readily available, this is not recommended as these precedents may not provide all of the protections the employer needs to ensure the termination clause, and employment agreement as a whole, will be upheld.
Lessons for Employees
It is important for employees to have employment agreements, including termination clauses, carefully reviewed by an Employment Lawyer prior to entering into these agreements and again at the time of termination. Signing an employment agreement containing a termination clause does not necessarily mean that the document, or its terms, are valid at the time of signing. New law or clarifications can also render the termination clause invalid at the time of termination when it is being relied upon. It is critical for employees to obtain independent legal advice both at the time of hiring and at termination (particularly prior to accepting a termination offer) to ensure that the proper entitlements have been provided by the employer. As demonstrated by Miller, sometimes one improperly selected word can render an entire termination clause invalid.
Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.
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