It is fairly common for a written employment agreement to seek to limit an employee’s termination notice to the minimum amount prescribed under employment standards legislation. However past case law suggests that doing so may be more difficult than it seems. Two new decisions from the Alberta and Ontario Courts of Appeal have examined the question, highlighting the problems that can arise from an improperly drafted termination clause.

In Holm v AGAT Laboratories Ltd, 2018 ABCA 23 ("Holm"), the Alberta Court of Appeal was asked to interpret a written employment contract with a termination provision that read in part as follows:

2(2)      In the event we wish to terminate your employment without just cause, we agree that we will give you notice of the termination of your employment, or at our absolute discretion, we will pay you, in lieu of such notice, a severance payment equal to the wages only that you would have received during the applicable notice period. This will be in accordance with the provincial legislation for the province of employment.

Citing the Ontario Court of Appeal’s decision in Roden v The Toronto Humane Society, 259 DLR (4th) 89 (Ont CA) ("Roden"), the Alberta Court affirmed that it is possible for an employee’s common law right to reasonable notice to be curtailed in a written employment contract, although clear language is required to do so. However the Court distinguished Roden from the case before it on the basis of the wording of the termination clauses themselves. 

In Roden, the termination clause required the employer to provide the minimum amount of notice (or pay in lieu) required under the applicable legislation. Comparing that clause to the one before it, the Court found that comparable “limiting language” was missing. While the final sentence of the termination clause required the notice to be in accordance with provincial legislation (as indeed it must be), the Court found such statutory notice to be the “floor” and not the “ceiling.” An employee’s reasonable notice period at common law will generally exceed that statutory “floor,” and thus would be “in accordance” with the governing legislation. Accordingly, the Court found that the termination provision did not oust the employee’s right to reasonable notice at common law, as it did not specify some other period of notice.

The Ontario Court of Appeal, in Nemeth v. Hatch Ltd., 2018 ONCA 7 ("Nemeth"), dealt with a case concerning the dismissal of a long-time employee without cause. The written employment contract contained the following express termination clause:

The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.

Unlike the Alberta Court in Holm, the Ontario Court of Appeal found that this termination clause was sufficient to oust the employee’s common law reasonable notice entitlement. In making this finding, the Court observed:

[9]         The need for clarity does not mean that the parties must use a specific phrase or particular formula, or state literally that “the parties have agreed to limit an employee’s common law rights on termination”. It suffices that the parties’ intention to displace an employee’s common law notice rights can be readily gleaned from the language agreed to by the parties.

Analysis

At first blush, the two decisions appear inconsistent. What is the difference between a clause entitling an employee to “notice required by the applicable labour legislation” and a clause prescribing that any notice “be in accordance with the provincial legislation”? How can these two cases be reconciled?

In reality, there is no conflict between these two decisions. In both cases, the wording about applicable employment standards legislation was found to be insufficient to limit the employee to the statutory minimum notice period. What was successful in affecting the employee’s common law rights in Nemeth was the calculation formula contained in the termination provision. Instead of a common law reasonable notice period, the employee was awarded one week notice per year of service, in accordance with the termination provision.

The approach taken by the Ontario Court of Appeal reflects the law in Alberta as well. In line with the Supreme Court’s oft-cited decision in Machtinger v HOJ Industries Ltd, [1992] 1 SCR 986, where a contract clearly specifies some other period of notice (that meets the statutory minimum), Courts will be willing to enforce it. On the other hand, where a termination provision merely states that the notice period will be “pursuant to” or “in accordance with” statutory requirements, Courts will interpret this as only setting a “floor.” Such a clause will be insufficient to override an employee’s common law rights.

These two decisions highlight the need for caution in addressing an employee’s rights upon termination. Even where care is taken and a formal employment contract is signed (as was done in these two cases), failing to give due regard to the Courts’ past interpretation of similar clauses may lead to an unintended result. Field Law’s Labour and Employment Team is available to assist in ensuring that your termination clause hits the mark.