Ontario Employment Termination Clause Update

The Ontario Court of Appeal has recently ruled once again, on the validity of a termination clause contained in an employment contract in Nemeth v. Hatch Ltd., [2018] O.J. No. 145.  In this case, the termination clause read:

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.

The employee argued, in part, that the termination clause did not explicitly exclude the common law and therefore, the employer had an obligation to provide reasonable notice instead of the minimum statutory requirements under the Employment Standards Act, 2000 (“ESA”). The employee also argued that because the clause did not reference “severance pay” or the continuation of benefits during the statutory notice period as required by the ESA, it was an attempt to contract out of the ESA and therefore unenforceable.

The Court disagreed with the employee and held that the clause clearly established that the parties intended and agreed to limit the employee’s entitlement to common law notice. The Court recognized that there was no particular phrase or specific words that were necessary. Rather, the Court stated that it was sufficient that the parties’ intention to displace the common law notice entitlements can be “readily gleaned from the language agreed to by the parties.” Assessing the sufficiency of the termination clause, the Court determined that it was not necessary to have an explicit stipulation in the termination clause displacing the common law as long as the employment contract specifies for some period of notice. The Court also stated that while the wording of the clause attempted to limit the notice period for the employee, it did not specifically exclude the entitlements for severance and benefits under the ESA and was, therefore valid.

Termination clauses in employment contracts are extremely important and are vital to protect employers at the time of termination. Employers need to ensure that these clauses comply with the minimum standards under the ESA and clearly set out what the employee is entitled to in the event of a termination. In our view, this case restores a measure of common sense to the jurisprudence surrounding the enforceability and legitimacy of termination clauses.