The following is Part IV in a series of blog postings on employment law, focusing on issues involving wrongful termination and remedies available.
Part IV – Termination Clauses
As mentioned previously, there are implied terms in every contract of employment that an employer will provide an employee with reasonable notice of termination. This presumption, however, may be rebutted with a valid and enforceable termination clause in an employment agreement.
Employers are increasingly looking to minimize their exposure to common law notice periods (i.e. notice periods that are awarded by the Courts depending on the factors listed above) by inserting a termination clause in their employment agreement with their employees. A termination clause is an unambiguous, statutorily compliant, clause that outlines the amount of notice an employer will provide an employee if they are terminated without cause.
In the majority of instances when a termination clause is present, the termination clause will provide for a notice period that is less than what an employee would have received under the common law presumption of reasonable notice. It is for this reason that many employees seek to challenge the validity and enforceability of these clauses. Some arguments that are usually put forth to challenge these clauses include, misrepresentation, lack of consideration, duress and unconscionability. Employees also tend to challenge the specific content of these clauses. In this regard, the employee will argue that the clause is too vague and ambiguous or that it fails to comply with the minimum notice periods required by the applicable employment legislation in the province.
Every termination clause must, at the very least, comply with the minimum statutory requirements in the jurisdiction of employment. A termination clause that fails to satisfy the minimum statutory requirements will be void. For example, a clause that states that in the event of termination without cause an employer will provide the employee with “2 weeks’ notice or pay in lieu of” will likely be struck and held unenforceable because it fails to, or has the potential to fail to comply with the minimum notice periods set out in the relevant employment standards legislation. More precisely, the clause outlined above fails to comply with the Employment Standards Act (ESA), because an employee that has been employed for 4 years would be entitled to a minimum of 4 weeks’ notice or pay in lieu of. This is more than the 2 weeks provided for in the employment contract. The clause therefore fails to meet the minimum standards set forth in the Act. In addition, although an employee who has only been employed for 1 year would only be entitled to 1 week notice or pay in lieu of pursuant to the ESA, the above clause would still likely be held to be void because it has the potential to fail to meet the statutory minimum. If a termination clause is held to be void and unenforceable, the common law presumption of reasonable notice will not be rebutted and the employee will be entitled to rely on the common law presumption of reasonable notice.