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Supreme Court of Canada Denies Leave to Appeal Lower Court Decision Upholding Termination Provision in an Employment Agreement

Over the last several years, termination provisions have been set aside by Courts for a number of reasons as employers have been held to exacting standards in the drafting of employment agreements.  In a case that brings some good news for employers, the BC Court of Appeal refused to set aside an employment agreement with a termination clause that limited the employer’s liability to the statutory minimums set out in the British Columbia Employment Standards Act.  Recently, the Supreme Court of Canada denied the employee’s request for leave to appeal the decision thus maintaining the appellate court’s decision on the proper interpretation of termination provisions in employment agreements.

In Miller v. Convergys CMG Canada Limited, 2014 BCCA 311 the employee, Miller, was hired by Convergys and worked his way up in the company to a management position. Upon his first promotion, he signed a new employment contract. This employment contract included a probation provision, which stated that Miller’s employment could be terminated within the first 90 days without notice. It also contained a termination provision stating that the notice period would be based on the statutory minimums set out in the Employment Standards Act. Miller was subsequently promoted again, but did not sign a new contract. Convergys asked Miller to move to the United States to better serve clients, and after refusing he was dismissed without cause. At this time, Miller had worked for Convergys for approximately seven years. He was entitled to seven weeks’ notice under the Employment Standards Act.  Convergys offered him seven weeks’ statutory notice as well as an additional seven weeks’ pay and benefits, which Miller refused to accept.

Miller sued Convergys for wrongful dismissal seeking reasonable notice at common law equivalent to twelve (12) months’ salary and benefits. 

The relevant employment contract provisions included the following language:

Probationary Period

Your position is subject to a Ninety (90) day probationary period. Your performance and suitability for employment with the company will be evaluated during the probationary period. The standard of performance during the probationary period will be in the sole discretion of the company. It is understood that the probationary period is designed to determine your suitability for continued employment. Consequently, your employment can be terminated at any time during the probationary period if you are deemed unsuitable, without the requirement to provide notice or pay in lieu of such notice.

...

Termination

...

b. 

Convergys may terminate your employment for cause, or by providing you with notice, or pay in lieu of notice in accordance with the Employment Standards Act of British Columbia.

...

Severability

Each paragraph of this agreement and the attached Schedules are separate and distinct covenants, severable one from the other and if such covenant is determined to be invalid or unenforceable, such invalidity or unenforceability shall attach only to the covenant to the extent of such invalidity or unenforceability, and all other covenants shall continue in full force and effect.

At the trial level, Miller argued that Convergys waived its right to rely on the termination provision when they made an offer at his termination. Miller also argued that the language in the probationary period clause violated the ESA because it precluded his statutory notice entitlement of two weeks’ at the time he signed the agreement since he had already worked for the company for two years at the time of his promotion.  Finally, Miller argued that his subsequent promotion invalidated the agreement. 

The trial judge rejected these arguments and held that the contract signed at the time of Miller’s first promotion continued to apply even when he was subsequently promoted. It was found that the termination clause was not ambiguous and the probationary period clause did not invalidate the balance of the termination provisions as it could be severed from the contract as unenforceable. The trial judge held that Miller was entitled only to the minimum notice under the ESA.

The B.C. Court of Appeal upheld the trial judge’s ruling, finding that the probationary period clause was severable pursuant to the severability clause in the employment contract. Removing the clause did not affect the rest of the termination clause, or the employment contract.

Some clarity is provided to employers as the B.C. Court of Appeal set out the following governing principles of contractual interpretation:  

“The court should strive to give effect to what the parties reasonably intended to agree to when the contract was made.

The starting point is the language of the contract, which should be given its plain and literal meaning, and be interpreted in the context of the entire agreement. Consideration may also be given to the factual matrix surrounding the creation of the contract.

If the contractual language reveals two possible interpretations, the court should seek to resolve this ambiguity by searching for an interpretation that reflects the true intent and reasonable expectations of the parties when they entered the contract, and achieves a result consistent with commercial efficacy and good sense. Considerations of reasonableness and fairness inform this exercise.

If these principles do not resolve the ambiguity, extrinsic evidence may be admissible to assist in ascertaining the parties’ intent.

As a last resort the principle of contra proferentem may be invoked to favour construction of the ambiguity against the party that drew the agreement. This principle may not be used, however, to create or magnify an ambiguity.

As to employment contracts in particular, these will be interpreted in a manner that favours employment law principles, specifically the protection of vulnerable employees in their dealings with their employers. Nevertheless, the construction of an employment contract remains an exercise in contractual interpretation, and the intentions of the parties will generally prevail, even if this detracts from employment law goals that are otherwise presumed to apply.”

This case underscores the importance of having properly drafted employment agreements which include severability clauses.  An enforceable employment that complies with applicable employment standards legislation will reduce an employer’s liability at the time of termination and withstand the court’s scrutiny if challenged in a wrongful dismissal action.    Contact a CCP lawyer to assist you in reviewing and revising existing employment agreements or in drafting new agreements for your workplace.