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The Wheel of Perpetual Uncertainty Continues to Spin in the World of Common Law Reasonable Notice

Termination clauses and common law reasonable notice are two aspects of Employment Law that employers continually encounter challenges with mastering – despite their best efforts to do so. The recent decision by the Ontario Superior Court of Justice in Sewell v. Provincial Fruit Co. Limited, highlights just how difficult it is for employers to predict with any certainty what their obligations will be when terminating an employee.

Facts:

• The plaintiff was employed by the defendant in a Senior Sales position for only six (6) months;
• The plaintiff’s employment was subject to a signed employment agreement with a termination clause that sought to limit the plaintiff’s entitlements to the statutory minimums; and
• The plaintiff was terminated and received two (2) weeks’ salary and benefits, consistent with the minimum requirements of the Ontario Employment Standards Act, 2000 (“ESA”).

Decision:

The Employment Agreement

• In reviewing the above-noted termination clause in the employee’s employment agreement, Justice Mandhane agreed with plaintiff counsel and concluded that the termination clause violated the minimum standards of the ESA and was therefore unenforceable.

  The Clause Violated the ESA for Two Reasons

1. A plain reading of the “Without Just Cause” provision in the termination clause supported the argument that it sought to combine notice and severance pay entitlements in violation of the ESA requirement to unconditionally pay both notice and severance entitlements.

For reference, this provision stated:

c) Termination by the Company without Just Cause

(A) The Company will be entitled to terminate your employment at any time without just cause by providing you with the following:

(ii) a payment, or at the Company’s sole option, notice or combination of notice and pay in lieu of such notice representing termination pay and, if applicable, severance pay, as may be required under the Employment Standards Act, 2000, as amended from time to time (the “Separation Period”) [emphasis added].

1. The “Termination for Just Cause” provision of the contract was illegal insofar as it contracted out of the ESA requirement to provide notice except in cases where an employee engaged in “willful misconduct.” Even though the offending term was not at issue in the instant case, a recent Court of Appeal precedent supported setting aside the entire contract if one or more terms are illegal.[1]
   

   For reference, this provision stated:

   b) Termination by the Company for Just Cause 

   The Company is entitled to terminate your employment at any time and without any notice or any further compensation for just cause and the Company will not have any further obligations to you whether at contract, under statute, at common law or otherwise [emphasis added].

   Common Law Reasonable Notice

   Since the termination provisions in the employment agreement were deemed unenforceable, the court’s shifted to considering the appropriate common law reasonable notice period in the circumstances according to the Bardal factors.

   Ultimately, Justice Mandhane concluded that the appropriate notice period in this matter was four (4) months.

   Justice Mandhane considered the following factors in drawing a conclusion regarding reasonable notice:

• the plaintiff was employed in a Senior Sales position with long-term growth potential;
• the plaintiff was not induced to leave his prior existing employment insofar as there was no extended negotiation of the employment terms and the plaintiff was already motivated to make a move;
• the plaintiff was 45 years old and had approximately seven to eight years of experience in the industry prior to joining the defendant company;
• the plaintiff was terminated after a short period of service (six months); and
• the plaintiff was eventually able to find suitable employment after 4 months, albeit at a lower salary.

Despite distinguishing this case from others based on the facts that (1) the plaintiff was not in a managerial position, (2) the plaintiff was not induced to leave previous employment, (3) the contract was not negotiated in bad faith, and (4) comparable employment was readily available; Justice Mandhane was persuaded to apply a notice period on the higher end of the ever-changing continuum that is reasonable notice case law.

The conclusion that the unenforceability of the “Termination for Just Cause” provision rendered the entire employment agreement unenforceable was informed by a recent Court of Appeal decision in Waksdale v. Swegon North America Inc. Employers may be able to take some temporary comfort in the fact that counsel for the employer has sought leave to appeal this decision to the Supreme Court of Canada. Stay tuned for further updates and developments.

This case underscores (1) the unpredictability of the common law reasonable notice assessment, (2) the importance of including valid and enforceable termination clauses in your employment agreements that comply with the statutory minimum requirements of the ESA, and (3) the trend of awarding longer notice periods for short service employees.

Please contact one of our lawyers at CCPartners who can assist with drafting appropriate employment agreements and enforceable termination clauses.