Saving Clauses Come to the Rescue of Severability Clauses
The Court of Appeal locked the door but then returned the key.
In 2017, the Court of Appeal for Ontario put an end to employers using “severability clauses” to cure contractual violations of employment standards. But in 2018, the court has approved the use of “saving clauses.”
A rose by any other name would smell as sweet.
North v. Metaswitch
In 2017, I argued North v. Metaswitch, 2017 ONCA 790, a case that dealt with a bit of contractual boilerplate known as a “severability clause.” This is a clause that says any illegal parts of a contract should be “severed” to bring the contract into compliance with the law.
Normally, a single potential violation of employment standards will render an entire termination provision void. In its absence, the employee will get “pay in lieu of reasonable notice,” a measure which pays more than minimum employment standards.
To avoid this consequence, employers have hoped that severability clauses would direct judges to “read up” any offending provisions to bring them into compliance with the bare minimum requirements rather than void the provisions entirely.
In North, the Court of Appeal decided that this use of severability clauses undermined employment standards legislation. It therefore held severability clauses to be “inoperative” when contracts violate employment standards.
Saving Clauses
In the aftermath of North, some employment lawyers suggested employers could just resort to the use of saving clauses instead.
A saving clause is a bit of language appended to the end of another clause which qualifies everything before it with something to the effect of, “…but under no circumstances will the employee get less than employment standards.”
Other employment lawyers recognized the similarity between saving clauses and severability clauses: both are a “safety blanket” designed to overcome the consequences of employment standards violations in the contract.
Amberber v. IBM
On June 22, 2018, the Court of Appeal released its decision in Amberber v. IBM Canada Ltd., 2018 ONCA 571.
This case dealt with what was called a “failsafe” clause (a saving clause). The clause effectively said, “If employment standards laws give you more than this contract, then you will get the employment standards.”
In the lower court, Justice Hebner recognized that the contract would pay less than required by law in certain circumstances. But Justice Hebner concluded that the failsafe clause operated in those circumstances to “ensure” that the employee would receive the minimum requirements, so “it cannot be said that the [contract] violates, or potentially violates” employment standards.
The Court of Appeal agreed with Justice Hebner. Writing for a unanimous court, Justice Gray rejected the employee’s argument that the failsafe clause was tantamount to a severability clause, distinguishing between the two as follows:
“The sentence in issue here is not analogous to a severability clause. It does not purport to sever any part of the termination provision. Rather, it ensures that any portion of the termination clause that falls short of [employment standards] must be read up so that it complies…”.
But that is the very definition of what the law calls “notional severance.”
Notional Severance
The law recognizes two types of severance: “blue-pencil severance” and “notional severance.”
Blue-pencil severance involves removing portions of a contract, as if by drawing a line through them;
Notional severance involves reading down (or reading up) a contractual provision so as to make it legal and enforceable.
The Supreme Court of Canada and the Court of Appeal for Ontario have both previously held that notional severance is inappropriate in contracts involving parties of unequal bargaining power (such as employment contracts).
It is perhaps unfortunate that the Court of Appeal in North expressly chose to frame its reasons around broader policy considerations rather than upon “the rules regarding blue pencil and notional severance.”
Less than a year later in Amberber, Justice Gray has invoked the very definition of notional severance to describe the feature of “saving clauses” which ostensibly distinguishes them from “severability clauses.”
Lock the Door and…Return the Key
There is no meaningful difference between a severability clause and a saving clause. Both achieve the same outcome by using slightly different modes of expression: a contractual violation is read up or down to spare it from being rendered null and void for all purposes.
Saving clauses undermine the same policy considerations noted in North.
The Court of Appeal took away the severability clause but then gave employers their safety blanket right back in the form of a saving clause.
[EDIT: On December 17, 2019, the Court of Appeal released its decision in Rossman v. Canadian Solar Inc., 2019 ONCA 992 (CanLII). The court distinguished Amberber and made broad remarks restricting the effectiveness of “saving provisions” generally: “Saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards. … Attempting to reconcile the provisions of the Termination Clause with the benefit of hindsight runs counter to the remedial purpose of the ESA.”]
