termination clauses: getting it...
TRANSCRIPT
HRPA – York Region ChapterJanuary 29, 2016
Presented by
Stuart E. Rudner
Termination Clauses: Getting it Right!
Overview
1. Why are contracts important?
2. Why use termination clauses?
3. Why are they so hard to enforce?
- Recent Case Law
4. How to do it properly
1. Enforceable employment agreement
2. Enforceable termination clauses
5. Review agreement template
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Contracts
Why Use Contracts?� Increase rights & flexibility
� Control costs
� Avoid uncertainty & cost of common law “reasonable notice” of dismissal
– Reduce Need for Lawyers (especially at termination)
� Customize to your needs
� Protect corporate interests
� Restrict post-employment conduct
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Common Myths
� Every employee has a probation period during which they can be dismissed without notice or cause.
� Unless a contract states otherwise, employees are only entitled to the Employment Standards Act minimum amounts of notice / severance
� Termination clauses are not enforceable
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Contracts
� Use them for ALL employees
– Not just management
� No boilerplate
� Customize for different people / positions
� Consider needs & wants
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What can you include?
– Term (fixed term or otherwise)
– Duties (maintain flexibility)
– Probation
– Hours of work
– Remuneration and benefits (maintain flexibility)
– Vacation
– Acceptance of policies
– No conflicting obligations
– Conflict of interest
– Confidentiality
– Expenses
– Social Media
– Layoffs
– Discipline
– Dismissal
– Jurisdiction
– Restrictive Covenants
Doing it properly
– Before there’s already an agreement
– With consideration
– Explained and understood
– Independent legal advice
Consideration
� Trusty Francis v CIBC – consideration is critical
� Before there’s already an agreement – offer of employment is consideration
� If it’s too late (offer already made, worker already hired or already working):
– Need fresh consideration
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What is Consideration
“Something of value”
� Promotion
� Raise
� Bonus
� New benefits
� Cash payment
� Vacation
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Why Use Termination Clauses?
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Dismissals Without Just Cause
� Can let be go any time
� Must provide Notice of Dismissal or Pay in Lieu
� Sources of entitlement
– Employment Standards legislation
– Common Law
�You Can contract out of common law
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Statutory Notice RequirementsLength of Employment Notice Required
Less than 3 months None
3 months but less than 1 year 1 week
1 year but less than 3 years 2 weeks
3 year but less than 4 years 3 weeks
4 year but less than 5 years 4 weeks
5 year but less than 6 years 5 weeks
6 year but less than 7 years 6 weeks
7 year but less than 8 years 7 weeks
8 years or more 8 weeks
Also severance pay if certain circumstances
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Common Law: How Much Notice?
� Requirement: “reasonable” notice
� The Bardal Factors
1) Length of service
2) Age
3) Position / Character of Employment
4) Availability of Similar Employment
What is “reasonable”?
� No “rule of thumb”
– Length of service is not only factor
� Beware the short-term employee
� Watch out for Inducement
� Factors are always evolving
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Reasonable Notice Periods
0
0.5
1
1.5
2
2.5
3
.6 to 2.5 2.6 to 5 6 to 10 11 to 15 16 to 20 21 and25
26 and30
31 and35
36 and40
Years of Service
Months Per Yr. of Service
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0-2 Years of Service
Position Average Mons. Mons. Range
Clerical 2.82 .2-12
Supervisory 3.67 .2-9
Sales 3.54 .01-15
Lower Mngmnt 3.42 1-10
Upper Mngmnt 6.76 3-12.75
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17-19 Years of Service
Position Average Mons. Mons. Range
Clerical 10.58 6-15
Supervisory 12.63 9-16
Sales 13.67 8-18
Lower Mngmt 13.38 7-24
Upper Mngmnt 18.14 12-24
Termination Clauses: CASE LAW
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� MANY recent cases
� Case law is largely unsettled & evolving
� Formerly “good” clauses may be unenforceable
� Courts favour unambiguous and clearly worded provisions
� Just because employee signed does notmean you are in good legal position
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Main Points
� Courts will enforce termination clauses
� Even if they are “harsh”
� BUT will find any excuse not to
– Ambiguity
– Breach of employment standards
– Lack of consideration
– Duress / lack of independent legal advice
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An employee may contract-out of his or her commonlaw entitlements upon a wrongful dismissal, but this canonly occur by clear, express and unambiguous languagein the employment contract that rebuts the commonlaw presumption that an employee can only beterminated on reasonable notice: Christensen v.Family Counselling Centre of Sault Ste. Marie & District,[2001] O.J. No. 4418 (Ont. C.A.); Machtinger v. HOJIndustries Ltd. (1988), 66 O.R. (2d) 545 (Ont. C.A.).
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Benefits must be addressed
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Clause: “Agree to accept notice/payment in lieu and/or severance in satisfaction of all claims which may arise out of statute of common law
Clause Upheld? No
Reasoning: Clause attempted to “draw the circle” around rights and didn’t mention continuation of benefits
Stevens v. Sifton Properties Ltd. (2012)
Termination Clause Upheld
Dimson v. KTI Kanatek Technologies Inc.
The Clause18(c) In addition, KANATEK may terminate this Agreement at its sole discretion for any reason, upon providing Employee all payments or entitlements in accordance with the standards set out in the Ontario Employment Standards Act, as may be amended from time to time.
18(d) If at any time KANATEK provides you with a bonus, it will not be included in the calculation of payment for the purpose of this Article or as otherwise agreed to or required by the Employment Standards Act.
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Dimson v. KTI Kanatek Technologies Inc.
The Decision[6] We agree with the motion judge’s observation that it would be inconsistent to interpret 18(d) as denying the appellant his entitlement under the ESA when 18(c) expressly provides that the appellant would be provided with everything to which he was entitled under the ESA.
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Termination Clause Struck Down
Wright v. The Young and Rubicam Group of Companies (Wunderman)
The Clause
“Payment will be inclusive of all notice, statutory, contractual and other compensation and statutory severance and termination pay you have…and no other severance, separation pay or other payments shall be made”
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The Decision
The clause evinced an intention “to treat the payment of base pay under the termination provisions as the totality of
the employee’s entitlements to compensation on termination, regardless of whether the contractual
provisions met the statutory minimum or not.”
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Wright v. The Young and Rubicam Group of Companies (Wunderman)
Miller v. Convergys CMG Canada Ltd. Partnership (BCCA)
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Clause: ESA Minimum Notice on Termination + Probationary Period for each time employment contract renewed
Clause Upheld? Yes
Reasoning: No intention of employer to contract out the ESA
Brown v. Utopia Day Spas and Salons (BCSC)
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Clause: Employer may terminate employment without cause or notice in accordance of ESA (BC)
Clause Upheld? Yes
Reasoning: Reference to Act incorporated it into the contract; minor grammatical errors in clause do not create material ambiguity so long as parties/intentions were discernable
Miller v. ABM Canada Inc. (ONSC)
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Clause: Dealt with notice period but did not address pension contribution or car allowance
Clause Upheld? No
Reasoning: Language in clause was sufficiently ambiguous as to true extent of employee’s ESA entitlement that it had to be construed against the employer
Hosford v. Warren Gibson Ltd. (ON SCSM)
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Clause: “Your employment may be terminated for just cause at any time without notice. Any other termination will be made in accordance with Labour Canada Standards.”
Clause Upheld? No
Reasoning: No such thing as Labour Canada Standards; ambiguous clausefailed to rebut presumption of reasonable notice
Leeming v. IBM Canada Ltd. (ONSC)
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Clause: Two weeks’ notice or ESA entitlement if dismissed between 3 and 5 years; >5 years = ESA or 3 weeks notice –whichever greater
Clause Upheld? No
Reasoning: Not sufficiently clear, express or unambiguous to deny common law notice entitlement
Oudin v. Le Centre Francophone de Toronto
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Clause: Employer may terminate the employment of the employee for all serious incidents (negligence, continuing incapacity, breach of confidentiality)
Clause Upheld? Yes
Reasoning: “Continuing incapacity” is an invalid ground for termination, but does not render the whole clause invalid
Howard v. Benson Group Inc. (ONSC)
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Clause: Employment may be terminated at any time by the Employer and payments will be made according to ESA
Clause Upheld? No
Reasoning: Language in clause was sufficiently ambiguous as to true extent of employee’s ESA entitlement that it had to be construed against the employer
Mlotek v. York-Med Systems Inc.(ONSC)
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Clause: New contract signed by employee in 2011 included clause focused on “entitlement” (singular); Argued to be ambiguous
Clause Upheld? Yes
Reasoning: Word “entitlement” when read with the rest of the clause found to be interpretable in the plural sense – no ambiguity
Pare and Corus Entertainment Inc. (Unjust Dismissal), Re (Canada Labour Code)
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Clause: Provided for 2.5 weeks notice, pay in lieu, or severance for each year. “In no instance will you receive less than your statutory entitlement.”
Clause Upheld? No
Reasoning: Clause was not drawn to complainant’s attention; wording lacks certainty, is too long, and could support several different interpretations
DeGagne v. Williams Lake (City) (BCSC)
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Clause: Employee will receive on dismissal either 1 month written notice (if dismissed during probation) or 6 months if dismissed in first year, or severance pay in amount equal to notice
Clause Upheld? Yes
Reasoning: No ambiguity
Carpenter v. Brains II, Canada Inc. (ONSC)
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Clause: Provide notice or salary in lieu thereof, and severance pay. No other compensation entitlement in common law or equity.
Clause Upheld? No
Reasoning: Only mentioning “salary” was interpreted to exclude benefits/other compensation, which is contrary to the ESA
Getting it Right
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Lessons to Learn
� Enter into contracts at time of hiring
I. Make the contract the offer
II. No agreement until signed
III. Do not commence onboarding /announce
IV. Adequate time to review, obtain ILA
V. Confirmation of ILA or opportunity for it
Or use consideration if later
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Lessons to Learn
� Draft termination clauses clearly
� Ensure compliance with employment standards
� Use “Saving Clauses”
� Invest in legal counsel now to save time, money and risk later
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Sample: Employment Contract
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See HANDOUT
Termination Clauses – what to include
� Probation
� With cause – may have to pay statutory amounts
� Without cause
� Temporary layoff
� Resignation
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Sample: Termination Clause
I. Clear and unambiguous
II. Employment standards compliant
III. Address benefits
I. What will and will not continue beyond statutory period
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See HANDOUT
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Stuart E. Rudner
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