Court of Appeal Clarifies issue of Benefit Provisions in Termination Clauses

In its long awaited decision in Wood v Fred Deeley Imports Ltd., 2017 ONCA 158, the Court of Appeal for Ontario struck down the following termination clause, finding that it constituted an attempt to “contract out” of the Employment Standards Act, 2000:

[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks’ notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph…. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.

The Plaintiff, Julia Wood, started working for the Defendant, a motorcycle distributor, in December 2007. In April 2015, the Defendant was bought out by Harley-Davidson Canada. As a result, the Defendant dismissed all of its employees effective December 4, 2015. At termination, the Plaintiff was earning approximately $100,000 annually and was 48 years of age. The Defendant gave the Plaintiff 13 weeks’ working notice and an additional payment equivalent to eight weeks’ pay, for a total notice of 21 weeks’ pay.

The Plaintiff sued the Defendant and brought a motion for summary judgment, asking the Court to find the employer’s termination provision unenforceable because it did not provide for benefit continuance through the notice period; a violation of the Employment Standards Act, 2000. The motions judge pointed out that even though the clause did not refer to the employer’s obligation to continue its contributions to the employee’s benefit plans during the notice period, it did not expressly contract out of this obligation. The motions judge stated that if he had found the clause unenforceable, he would have awarded the Plaintiff nine months’ pay in lieu of notice.

The Plaintiff appealed to the Court of Appeal for Ontario. The Court of Appeal allowed the Plaintiff’s appeal and found that the clause constituted an attempt to contract out of the obligation to pay benefits through the notice period. In particular, the Court found the termination clause used language that excluded the obligation to pay benefits because the payments to be made were “inclusive” of her entitlements under the ESA. Deferring to the motions judge’s finding respecting pay in lieu reasonable notice, the Court of Appeal awarded the Plaintiff nine months’ pay, plus her legal costs.

Setting aside termination clauses on a summary judgment motion has been a trend in employment law for the past three years. The Court’s reasons in in Wood v Fred Deeley provide a measure of clarity regarding similar termination clauses.  A termination clause need not refer to benefits to be enforceable, though the obligation to provide payment of monies in lieu of notice to a departing employee cannot “include” payment of benefits through the notice period. Employers must be vigilant in ensuring the enforceability of their termination clauses, for the consequences of having a Court set them aside can be very costly.