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Date:
2018.06.28

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THE EMPLOYERS' EDGE

Good News for Employers as Court of Appeal Chastises Lower Court for Finding Ambiguity in Termination Clause Where None Existed

Practice Areas: Employment Standards

As we know, the Ontario Court of Appeal released a decision in 2016, Oudin v. Centre Francophone de Toronto, where a termination provision was upheld despite the fact that it did not specifically set out each and every obligation the employer owed to the plaintiff under the ESA.  CCP blogged (on June 29, 2016 and February 9, 2017) about how the Oudin decision signaled a shift from an overly technical analysis of the contract language to a focus on the parties’ intentions.

In another recent favourable decision for employers, Ontario’s Court of Appeal appears to have confirmed the shift away from the pre-Oudin overly technical approach.

In this case, an employee was employed by IBM for approximately 16 years. The employee entered into an employment agreement with IBM which stated:

TERMINATION OF EMPLOYMENT

If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary.

This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation.

In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.[Emphasis added].

Upon the termination of his employment, IBM provided the employee with separation pay according to the language in the termination provision. However, the employee brought a Claim against IBM, arguing that the termination provision was vague and therefore unenforceable. The employee was seeking common law reasonable notice and not the ESA minimums.

Despite what seems like a clearly drafted clause, Ontario’s lower court agreed with the employee and found the termination clause was ambiguous and not enforceable. Sadly, the lower court’s ruling was consistent with many other lower court rulings in the last decade, where courts have seemingly strained to find some minor ambiguity or shortcoming in termination provisions in order to award employees common law reasonable notice - which is very onerous on employers given it is typically at least double the ESA minimums, and often times far more than double.

However, IBM appealed the decision and the Court of Appeal overturned the lower court findings, rejecting the employee’s arguments and finding instead that the termination provision was not ambiguous. The Court of Appeal stated at paragraph 63:

[63]  In my view, there is no ambiguity… “[t]he court should not strain to create an ambiguity where none exists.”  In my view, the motion judge strained to create an ambiguity where none exists.

This is great news for employers as it appears Ontario’s highest court is sending a consistent message to lower courts over the last few years, that the parties’ intentions ought to be respected when interpreting termination provision.   

The Court of Appeal also held that the failsafe clause (highlighted above) was enforceable. This is very important for employers because it will help make the drafting of enforceable termination provisions that stand the test of time more feasible.

The lawyers at CCP are experienced in the drafting of enforceable employment agreements that comply with legislative obligations and court decisions.  Click here for a list of lawyers that can assist with your employment contract questions. 

Click here to access CCPartners’ “Lawyers for Employers” podcasts on important workplace issues and developments in labour and employment law.

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