Termination Clauses: Limiting Notice of Termination to Statutory May Still Require Common Law Notice to be Paid

Kosowan v. Concept Electric Ltd. – Alberta Court of Appeal – March 12, 2007

An employer may still have to pay common law notice on termination even though a termination clause attempts to limit such notice to statutory.

The case of Kosowan v. Concept Electric Ltd. [2007] A.J. No. 266 (“Kosowan”), an Alberta Court of Appeal decision made on March 12, 2007, demonstrates the importance of employer’s having clear termination clauses. More specifically, when an employer intends to remove an employee’s right to common law notice through a termination clause, the employer should ensure that this intention is clearly stated and not susceptible to any other possible interpretation.

In Kosowan, the employee was employed pursuant to a written agreement which stated, “The company reserves the right to terminate your employment at any time…Should you be terminated for reasons other [than] cause then you will be entitled to advance notice or severance pay thereof in accordance with the Employment Standards Act of Alberta.” The employee was eventually terminated without cause and given four weeks salary in lieu of notice in satisfaction of the above clause. In response to the amount of notice given, the employee brought an action against their employer claiming wrongful dismissal for not paying common law notice.

On summary judgment the Master found that the employee’s claim of wrongful dismissal must fail because of the written agreement’s reference to the Employment Standards Act of Alberta (“ESA”). Accordingly, this reference limited the employee’s entitlement to the provisions in sections 56 and 57(1) of the ESA, which state that if an employee has been employed by an employer for four years then the employer must give the employee at least 4 weeks written notice. The employee appealed this decision, yet the Court of Queen’s Bench upheld the Master’s judgment.

When appealed to the Alberta Court of Appeal, the lower Court’s decision was overturned. In rendering their decision, the Court of Appeal considered section 3(1)(a) of the ESA, which states “Nothing in this Act effects any civil remedy of an employee or an employer”. It was found that the termination clause did not render this section inapplicable. Rather, according to the Court of Appeal, “The clause does not, on its face, confine the [employee] to compensation pursuant to ss. 56 and 57(1) of the Code. On the contrary, the choice of language leaves open to the employee the ability to pursue an action.”

The decision that was reached in Kosowan highlights the importance of an employer clearly expressing their intention to remove an employee’s right to common law notice (which could be substantial) through a termination clause. If the employer intends to achieve this, yet uses general terms in the termination clause, then the employer runs the risk of having the termination clause misinterpreted by their employees and the Courts. For a termination clause to limit common law notice it is critical that the clause be drafted in such a manner to express the necessary information with the appropriate language in order to pass judicial scrutiny. Further, whether or not an employer has advised an employee to receive independent legal advice prior to signing the agreement, or whether an employee has received independent legal advice, with respect to their rights on termination and how the clause limits these rights, prior to signing the agreement, may be an important factor in determining whether or not a Court will order that common law notice be paid.

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