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Ontario Employer Advisor Keeping Employers Advised on Developments in Labour and Employment Law

Are the Tides Finally Turning? Ontario Court of Appeal Upholds Termination Provision Providing Only for “Notice” Under the ESA

Posted in Contractual Termination Provisions, Employment Agreements, Employment Standards, Termination
Sean Porter

In a recent case, Oudin v Centre Francophone de Toronto (“Oudin”), the Ontario Court of Appeal has offered potential relief to employers whose contractual termination provisions provide an employee with only his or her minimum “notice” entitlement under the Employment Standards Act, 2000 (the “ESA”).

The State of the Law Prior to Oudin

As a general principle, if an employer wants to limit an employee’s entitlements upon a without cause termination to the minimums established by the ESA, the contractual provision must ensure that the employee will be provided with at least their ESA minimum entitlements to notice, severance and benefits continuance. If a court finds that a provision may provide an employee with less than these ESA minimums (including by virtue of having failed to explicitly address ESA entitlements such as benefits continuance and severance), it will likely find that the parties have illegally attempted to contract out of the ESA and will deem the contractual provision unenforceable, resulting in the employee being entitled to common law notice, which is almost uniformly well in excess of the ESA minimums.

For example, in Stevens v. Sifton Properties Ltd., the Ontario Superior Court of Justice considered a termination provision that provided: “The Corporation may terminate your employment without cause at any time by providing you with notice or payment in lieu of notice, and/or severance pay, in accordance with the Employment Standards Act of Ontario.” The Court found that this provision was void because it failed to address the employee’s right to benefits continuation during the notice period.

The Court of Appeal’s Shift in Oudin

In this case, which was an appeal to the Court of Appeal from a decision of Dunphy J., the termination provision in Mr. Oudin’s employment agreement allowed the employer to terminate him with the greater of 15 days’ notice or the minimum “notice” required by the ESA. The provision did not explicitly address benefits continuation or severance entitlements under the ESA. The employee argued that it was therefore unenforceable.

The motion judge at the original summary judgment motion rejected this argument and found in favour of the employer, deciding that the intent of the contractual termination provision was to provide the employee with (all of) his ESA entitlements and that a reasonable interpretation of the provision supported that.

On appeal, the employee argued that the motion judge erred by failing to consider that the termination provision only provided for “notice” and was therefore contrary to the ESA. The Court of Appeal rejected this argument and affirmed the motion judge’s decision.

Notes for Employers

Given that this is a departure from prior lower court decisions, employers should still be cautious and ensure careful drafting of termination provisions to explicitly address ESA benefits and severance entitlements in addition to “notice”.  However, this case does provide a helpful precedent that employers and employer counsel should be aware of when addressing claims from employees who are challenging the enforceability of such provisions.   It is too early to say whether this will “turn the tide” against previous lower court decisions, but the weight of this decision coming from the Ontario Court of Appeal will hopefully influence lower courts not to view the failure to explicitly invoke the “magic words” of notice, severance and benefits continuance as fatal to the enforceability of termination provisions.

If you have any questions about this decision or about the enforceability of your contractual termination provisions, please reach out to the members of the Labour & Employment Group at McCarthy’s.