There is much debate about the enforceability of termination clauses in employment agreements and hiring letters. Whether a termination clause will be enforced depends on many factors including, but not limited to, the wording of the clause, how it was implemented, how long an employee was employed prior to termination, their total compensation at the time of termination and to a large extent, who is interpreting the clause.
In the Ontario case of Shapka v. Interbase Consultants Ltd. (“Shapka”), the Court analyzed the facts surrounding the termination clause contained in the employee’s contract of employment and determined that it was valid and enforceable. As a result, the employee was not entitled to any common law notice after two years of service and was only entitled to statutory notice representing two weeks.
At the time of hiring, the Employee signed an employment contract containing a termination clause limiting his notice entitlements. The termination clause allowed either the Employee or the Employer to terminate the employment relationship at any time without cause upon giving two weeks’ notice to the other party. Two years after being hired the Employer terminated the Employee without cause and provided the Employee with two weeks notice in accordance with the employment contract and termination clause contained within. The two weeks provided to the Employee was also the same amount of statutory notice owing to the Employee based on his period of employment prior to termination. The Employee brought legal proceedings against the Employer seeking common law notice, along with punitive damages and special damages.
The Court reviewed the termination clause, along with case law presented by each side and ultimately dismissed the action on the basis that the termination clause was valid and accordingly, no further notice was owing to the Employee.
The Court noted that the termination clause did not provide the Employee with less than his statutory notice entitlements at the time of termination and therefore the Court determined that there was no violation of the Employment Standards Act, 2000 (“ESA”) which would render the termination clause invalid. The Court stated that, “the clause at issue in this case is a full answer to the [Employee’s] claim for additional notice beyond the amounts he has been paid. Given the wording of the contract clause, the fact of payment in accordance with that clause and the fact that the amount paid is equal to the amount which would have been paid under the ESA, the [Employee] is not entitled to more notice.” The Court further stated that, “A bargain which complies with the ESA on a present set of facts is not a bad bargain for an employee. The idea that a contract might on some further hypothetical set of facts create the ‘potential’ for non-compliance is an unreasonable basis for treating an otherwise complaint provision on a current set of facts as void.”
While this case is very fact specific, it does provide some interesting food for thought!
Lessons for Employers
This decision demonstrates that the Courts may in some situations uphold termination clauses that provide a calculation of notice equal to an employee’s statutory entitlements at the time of termination, even if the calculation may, at some future time, provide the employee with less than their statutory entitlements. A properly drafted and implemented termination clause is an employer’s best defense against claims by terminated employees for additional notice and should be drafted with the utmost care to ensure enforceability. Employers should seek out the advice of Employment Law Lawyers for guidance on this critical issue.
Lessons for Employees
Employees should be aware that while termination clauses may limit their common law notice entitlements, this is not always the case. When presented with an employment agreement at the time of hiring that contains a termination clause, it is critical for the employee to have the agreement and the termination clause reviewed to see whether it will be valid and enforceable at the time of termination. The employment agreement and termination clause should also be revisited at the time of termination to see if the clause is still valid based on the facts existing at the time of termination. Employees should obtain legal advice both at the time of hiring and at the end of the employment relationship to see whether the employee is entitled to any additional notice or whether the termination clause is valid in limiting the employee’s notice entitlements.
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.
See also our article published in Canadian Employment Law Today, “Termination clause upheld – 2 years work, only 2 weeks wages!”
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