In order for a termination clause in an employment contract to be considered valid, it must adhere to the minimum standards under the Ontario Employment Standards Act (“ESA”). Many employers include termination clauses to reflect their intention to limit entitlements owed to an employee based on these standards. In order for courts to consider the termination provisions in an employment contract valid, the clause must be drafted in a manner that clearly reflects the parties’ intentions to abide by the ESA’s statutory minimums. This includes addressing issues such as continued payment of employee benefits, severance, providing reasonable notice and payment in lieu of notice.
The Ontario Court of Appeal decision in North v. Metaswitch Networks Corporation, is noteworthy with respect to the favourable interpretation given to a termination provision in favour of an employee. In North, the Court concluded that an otherwise enforceable termination provision in an employment contract was invalid on the basis that it failed to fully address the concept of “wages” under the ESA. The offending provision in the contract stated that “[i]n the event of the termination of your employment, any payments owing to you shall be based on your Base Salary, as defined in the Agreement.” This entire provision was deemed invalid because payments “based on your Base Salary” failed to contemplate commissions owed to the employee, and thus contravened the ESA.
The Court reinforced its decision by refusing to uphold a severability clause also contained in the contract. A severability clause allows for the removal of an illegal or offending portion of a contract to be severed from the balance of the provision that is legally valid. Here, the severability clause stated that “[i]f any part of the Agreement is found to be illegal or otherwise unenforceable by any court of competent jurisdiction, that part shall be severed from this Agreement and the rest of the Agreement’s provisions shall remain in full force and effect.” The employer argued in favour of upholding the severability clause, the Court disagreed and found that the severability clause was rendered void by Section 5(1) of the ESA.
Employers need to be extremely cautious in drafting termination provisions to ensure that statutory minimums under the ESA are met. As shown in North, the Court is steadfast in guaranteeing employee rights under the ESA. Invalid termination provisions will be rejected in their entirety and, Section 5(1) of the ESA will likely render a severability clause void.
If you need more clarity in respect to the Severability Clause or any other employment contract issue, get in touch with our Toronto employment lawyers today who will defend all your employee rights!