Termination Clauses Must be read as a Whole

Termination Clauses must be read as a Whole to Determine Intention of the Parties

In Amberber v. IBM Canada Ltd., 2018 ONCA 571, released June 22, 2018, the Ontario Court of Appeal (“OCA”) has released another decision regarding the interpretation of a termination clause in an employment contract. The decision is good news for employers.

As most of our readers are aware, a termination clause contained in an employment contract must be clear, unambiguous and at a minimum, provide for the employee’s minimum statutory entitlements as provided by the applicable employment standards legislation. In this case, the termination clause considered by the court provided:

“If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current base salary or (b) one week of your current annual base salary, for each completed six (6) months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary. This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separate payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation. 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.”

The employee contended that the clause was ambiguous and that it failed to adequately displace the employee’s entitlement to common law reasonable notice. The motion judge agreed with the employee and determined that the clause was ambiguous. In doing so, she interpreted the clause as three separate parts: the options section, the inclusive payment section (bolded above), and the failsafe section. She ruled that because of the final portion, the “failsafe provision”, did not expressly reference or displace the common law entitlement, it was ambiguous and therefore, it did not rebut employee’s entitlement to common law reasonable notice.

The employer appealed the decision. The OCA overturned the motion judge’s decision. The OCA said that the fundamental error made by the motion judge is that she subdivided the clause into what she regarded as three separate parts and interpreted them individually rather than as a whole.   The motions judge failed to consider the entire termination clause as a whole. When read as a whole, there was no ambiguity as to the clause’s meaning. A clear formula was established by the employer, which included all minimum statutory entitlements. The OCA reaffirmed that principle that the court should not strain to create ambiguity where none exists. In this case, the motion judge strained to find ambiguity where none existed. The clause was enforceable and displaced the employee’s entitlement to common law reasonable notice. The onus remains with employers to draft clearly defined termination clauses without ambiguity.