Canada (Ontario): Contractual Termination Clauses
There has been some legal uncertainty about the use of contractual termination clauses that limit employees to the minimum statutory entitlements under the Employment Standards Act 2000 (“ESA”).
Lower court decisions have been contradictory. The Ontario Supreme Court has now clarified the position.
Context
Employment termination clauses (whether with or without cause) sometimes refer to the notice and compensation terms required by the ESA, in an attempt to limit exposure to the notice provisions under common law.
Challenged by employees on the enforceability of these termination clauses, the lower courts have reached opposite conclusions.
Supreme Court Clarification
The Supreme Court has now, to a degree, validated references to ESA in termination clauses, subject to some conditions:
- The termination clause must be fully ESA compliant – clearly entitling the employee to receive no less than all their minimum compensation or ESA entitlements.
- The use of phrases such as termination “at any time” or “for any reason” did not of themselves invalidate the ESA reference, provided there was no attempt to limit the ESA entitlements.
- Courts should not invalidate otherwise compliant agreements, provided the wording is clear and accurate.
Actions for Employers
Employers should, where ESA is referred to:
- ensure the template employment termination clauses you intend to rely on are fully ESA compliant;
- prior to a dismissal decision, check that the termination clause(s) to be relied on, and the employment contract as a whole, is ESA compliant. If issues are spotted, consider the risks involved of the clause being invalid and adjust your approach accordingly.
This is a high-level general update only. Legal advice should be obtained on specific circumstances.