The termination clause is one of the most important, and yet one of the most vulnerable portions of an employment contract. Such clauses have come under increasing judicial scrutiny in recent years, and will be subject to even greater scrutiny by courts following the Ontario Superior Court’s decision in Stevens v. Sifton Properties Ltd. In this case, the Court held that, if a termination clause does not specify that benefits will be continued during the notice period prescribed by statute, the termination provision is unenforceable, and common law entitlements may apply.
Stevens had been employed by Sifton as the Head Golf Professional at a golf course in London, Ontario. After three and a half years, her contract was terminated without cause, as per the termination clause in her letter of offer. With respect to termination without cause, the termination clause provided as follows:
“The Corporation may terminate your employment without cause at any time by providing you with notice or payment in lieu of notice, and/or severance pay, in accordance with the Employment Standards Act of Ontario;
“You agree to accept the notice or payment in lieu of notice and/or severance pay referenced in paragraph 13(b) herein in satisfaction of all claims and demands against the Corporation which may arise out of statute or common law with respect to the termination of your employment with the Corporation.”
Sifton indicated at the time of termination that it would also continue Stevens’ benefits (namely, vacation pay, health benefits and pension plan contributions and benefits) for a period of three weeks, which corresponded to the three week statutory notice period, and that it would pay her a discretionary bonus.
Stevens brought a claim of wrongful dismissal, in which she alleged that the termination clause in the employment agreement was unenforceable, and that she was therefore entitled to reasonable notice in accordance with the common law. Several arguments were made to support this position, but the Court ultimately accepted the reasoning that, since the termination provision did not explicitly provide that benefits would be continued during the notice period, the contract was contrary to the Employment Standards Act, 2000 (ESA) and was therefore null and void.
Stevens argued, and the Court agreed, that the excerpted portion of the employment agreement was exhaustive of the payments to be made to the employee in the event of termination without cause, given that the last paragraph of the provision stated that the payments referenced were in satisfaction of all statutory and common law entitlements. As such, Stevens would be unable to make any further claims in regard to a continuation of benefits. Accordingly, and notwithstanding that Sifton had chosen to provide for the continuation of benefits in any event, the provisions of the termination clause itself contravened the ESA, which rendered them null and void and allowed Stevens to claim common law reasonable notice.
This case is important for employers as it reiterates that, in order to be upheld by the Court, a termination clause must comply with all aspects of the ESA, including the obligation to continue benefits during the statutory notice period. Ambiguous language in a termination clause that may give rise to an interpretation that the employee could receive something
less than the minimum legislative requirement could render the provision void, and open the door to the application of much more expensive common law reasonable notice requirements.
A periodic review of employment contracts is good practice to ensure that its language remains enforceable as the law evolves.