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Ensuring Compliance with the Employment Standards Act or an Inoperative Severability Clause? Subtle Differences in the Wording of Termination Provisions Can Lead to Opposite Effects
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Ensuring Compliance with the Employment Standards Act or an Inoperative Severability Clause? Subtle Differences in the Wording of Termination Provisions Can Lead to Opposite Effects

By December 18, 2019 December 24th, 2019 No Comments

As courts have become more flexible in deciding whether termination clauses in employment agreements are enforceable, the arguments that specific clauses are not have gotten more creative. In Amberber v. IBM Canada Ltd., 2018 ONCA 571, the Ontario Court of Appeal reversed the trial judge’s holding that a termination clause was void because a sentence that attempted to ensure compliance with the Employment Standards Act (ESA) was actually a severability clause that was inoperative and could not save the rest of the provision.

In North v. Metaswitch Networks Corporation, 2017 ONCA 790, the Court of Appeal affirmed the following rule: 

The other approach is to first assess the termination clause to see whether there is any contracting out of an employment standard. If there is, then the termination clause is void, and there is nothing to which the severability clause can be applied. In that way, the severability clause is not void, but it is inoperative where the agreement contracts out of or waives an employment standard.

 

The rule means that severability clauses cannot be used to save a termination clause that violates the ESA because the entire termination clause is automatically void. 

 

In Amberber, the court had to decide whether the following sentence in a termination provision constituted a severability clause:

 

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.  

 

In doing so, the Court considered whether the sentence purported to sever any part of the termination provision. It found that it did not. Therefore, it was not a severability clause and was simply a portion of the termination provision that ensured compliance with the ESA

Although the employee’s argument was unsuccessful in Amberber, similar arguments have been accepted in two cases since decided. In Groves v. UTS Consultants Inc., 2019 ONSC 5605 (CanLII), the Superior Court expressly referred to Amberber in its decision, finding that:

 

In Amberber, the Court of Appeal “read up” a termination provision to comply with the ESA because the provision was capable of an interpretation that would be in compliance with the ESA: Amberber, at para. 54.

 

The Court interpreted the decision in Amberber to hold that the sentence in that case ensured that any portion of the termination clause that fell short of the ESA had to be read up to comply with the ESA. It could do so because the rest of the termination provision did not necessarily limit the employee’s entitlements such that they did not comply with the ESA. Instead, the rest of the clause was already capable of an interpretation that would be in compliance with the ESA. The sentence in question removed any ambiguity as to the interpretation, confirming that the remainder of the clause was to be read up to comply with the ESA.

 

The Superior Court in Groves proceeded to find that the following “saving clause” could not be used to assist or read up a termination provision that was incapable of an interpretation that would comply with the ESA:

 

“[n]otwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the [ESA].”

 

A similar decision can be found in Rossman v Canadian Solar Inc, 2018. 

These decisions show that plaintiffs are getting creative in arguing that termination clauses are void, and judges are willing to listen. Although this suggests that the courts may be trying to find ways to be more employer-friendly following recent decisions that have made it easier for employers to draft valid termination provisions, it also adds to the uncertainty in interpreting such clauses. The difference between a sentence in a clause that ensures compliance with the ESA and one that is an inapplicable “saving clause” that fails to save a termination provision could be basic wording that at first glance is almost synonymous. Employers should continue to try to use very precise language when trying to oust their employees’ common law entitlements upon termination, while employees should continue to find creative arguments for why such termination clauses are void. Currently, it feels as though many termination clauses could be interpreted either way.

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