Am I Making Myself Clear?
The termination clause in your employment contract needs the right language: a review of Ontario cases.
When employers draft employment contracts, they ask themselves an important question: “Am I making myself clear?” Recent court decisions have fanned the flames of a decades-long legal debate about just how clearly-worded an employment contract has to be in order to properly limit an employee’s entitlements upon termination.
First, some background helps to understand the debate.
Reasonable Notice
In Ontario, absent express contractual language to the contrary, employees are entitled to the legal presumption that their employment can only be terminated upon “reasonable notice.”[1] What constitutes “reasonable” notice is decided on a case-by-case basis with reference to a number of factors. But the “reasonable notice” standard consistently provides employees with more notice than the bare minimum notice required by the Employment Standards Act, 2000 (the “ESA”).
Rebut the Presumption
Employers can “rebut the presumption of reasonable notice” by including a termination provision in their employment contracts which clearly specifies some other period of notice. The parties can negotiate for any amount of notice, so long as the contract complies with the minimum requirements of the ESA. Employment contracts may (and often do) referentially incorporate the minimum notice periods of the ESA in order to minimize the employer’s liability upon termination.[2]
Attack the Termination Provision
There are two common attacks upon such termination provisions:
an employee can attack the termination provision as illegal by identifying even a single violation of the ESA, thereby invalidating the entire termination provision;[3] or
an employee can attack the termination provision as ambiguous by demonstrating that the words employed in the contract are at least equivocal about whether they express a clear intention to oust the “reasonable notice” standard.
Whether illegal or ambiguous, a successful attack will mean the termination provision does not rebut the presumption of reasonable notice. The employee will have a larger claim for pay in lieu of notice.
Ambiguous Language
The reliability of a termination provision often turns on subtleties of language.
The cases say a “high level of clarity” using “clear and unambiguous language” is required to rebut the presumption of reasonable notice.[4] But how clear is clear enough?
Employee-Friendly
An employee-friendly approach advocated by the Court of Appeal for Ontario says, “if a termination clause can be reasonably interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee.”[5]
It’s not that hard to draft a termination clause. Or, as Justice Low puts it, “There is … no particular difficulty in fashioning a termination clause … and there is no compelling reason to uphold a termination clause which the draftsman may reasonably be understood to have known was not enforceable either at all or under certain circumstances.”[6]
Employer-Friendly
Other Judges suggest employers should enjoy some relief from overly technical interpretations.
Justice Dunphy writes, “The goal is not to imagine how the contract can be construed at its conclusion with a pre-determined goal of finding a means to avoid it entirely because one side finds it less generous than desired. The goal is always and everywhere to determine what was intended on a true and fair construction of the contract.”[7]
Justice Lederer adds, “We are to look for the true intention of the parties, not to disaggregate the words looking for any ambiguity that can be used to set aside the agreement and, on that basis, apply notice as provided for by the common law [reasonable notice standard].”[8]
The Tension
This tension has permeated Ontario employment law for decades.
On the one hand, the courts have developed rules of interpretation which favour employees because of the recognized “imbalance of bargaining power” which limits an employee’s influence over the terms of their contract when it is negotiated.[9]
On the other hand, the courts are reluctant to adopt overly technical interpretations because of the basic principle of contract law which directs courts to enforce the agreements of parties as objectively discerned from the language they have freely chosen to express themselves.[10]
You Don’t Need to Turn The Floor into a Ceiling
In practice, this has led to some unpredictability about whether termination provisions will withstand judicial scrutiny.
In 2005, the Ontario Court of Appeal was presented with a termination provision which permitted termination “upon providing the Employee with the minimum amount of advance notice … required by [the ESA].”[11] Plainly, contractual language which provides for “the minimum” does not clarify whether the employee gets “only the minimum” or “at least the minimum (and more).” Notwithstanding this ambiguity, the court upheld this provision as sufficient to rebut the presumption of reasonable notice.
In 2012, after reviewing the existing jurisprudence, Justice Leach concluded that termination provisions which “ensure only minimum notice in accordance with [the ESA]” will rebut the presumption of reasonable notice even without specifying that the notice “floor” is also the contemplated notice “ceiling.”[12]
You Do Need to Turn The Floor into a Ceiling
More recently, the hold of this jurisprudence has begun to slip.
In 2017, Justice Morgan considered a termination clause which, “using the barest possible language,” provided as follows, “If the [employer] terminates your employment, it will comply with its obligations under [the ESA].” The court concluded that the clause was “ambiguous at best,” did not “curtail in any way” the presumption of reasonable notice, and said “nothing more than that the employer will obey the statute.”[13]
In 2018, Justice O’Bonsawin considered a clause which permitted termination “upon providing [the employee] with notice … pursuant to [the ESA].” Justice O’Bonsawin regarded the clause as insufficiently clear to rebut the presumption of reasonable notice. The court offered that clarity would have been improved if the employer had instead said termination was permitted “upon providing [the employee] with notice … only pursuant to [the ESA].[14]
A Tea Party on The Ceiling
Finally, in another recent 2018 decision, the Court of Appeal for Ontario weighed in with this to say about floors and ceilings, “[The employer’s termination provision] has no language restricting the [employee’s] entitlements to only the minimum notice stipulated under the ESA. If the [employer] had wished to include such a limitation, it was free to draft the termination clause differently, using language that “converts the statutory floor into a ceiling” … It did not do so.”[15]
The court in this case actually found the employer’s termination provision fell somewhere between the two extremes: it was sufficiently clear to rebut the presumption of reasonable notice, but it did not limit notice to the bare minimum (specifying an amount slightly higher).
On the issue of clarity of language, the Court of Appeal said this, “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 [reasonable notice] rights on termination”. It suffices that the parties’ intention to displace an employee’s common law [reasonable notice] rights can be readily gleaned from the language agreed to by the parties.”[16]
Whether this explanation clarifies the debate remains to be seen.
___________________________
[1] Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), at pg. 997.
[2] Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), at pg. 1004–1005.
[3] North v. Metaswitch Networks Corporations, 2017 ONCA 790, at para. 24; Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, at para. 21; Miller v. A.B.M. Canada Inc., 2014 ONSC 4062 (CanLII), at paras. 36, 42–47, aff’d by Divisional Court in 2015 ONSC 1566 (CanLII).
[4] Ceccol v. Ontario Gymnastic Federation, 2001 CanLII 8589 (ON CA), para. 45; Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, at para. 40.
[5] Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII), at para. 28.
[6] Wright v. The Young and Rubicam Group of Companies (Wunderman), 2011 ONSC 4720 (CanLII), at para. 36.
[7] Oudin v Le Centre Francophone de Toronto, 2015 ONSC 6494 (CanLII), para 51.
[8] Nemeth v Hatch Ltd., 2017 ONSC 1356 (CanLII), para. 15.
[9] Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII), at para. 28.
[10] Oudin v Le Centre Francophone de Toronto, 2015 ONSC 6494 (CanLII), para 2.
[11] Roden v. Toronto Humane Society, 2005 CanLII 33578 (ON CA), at para. 55.
[12] Stevens v. Sifton Properties Ltd., 2012 ONSC 5508 (CanLII), at para. 49.
[13] Nogueira v Second Cup, 2017 ONSC 6315, at paras. 3, 11, 13.
[14] Bergeron v. Movati Athletic (Group) Inc., 2018 ONSC 885, at para. 23.
[15] Nemeth v. Hatch Ltd., 2018 ONCA 7 (CanLII), at para. 22.
[16] Nemeth v. Hatch Ltd., 2018 ONCA 7 (CanLII), at para. 9.
