March 18, 2022
If you are an employer, you might well be frustrated by the attitude of the courts towards the enforcement of termination clauses in contracts.
Of course, even though we have commented previously on how the courts, often for good reason, favour employees in the interpretation of employment contracts, you might not be worried about this issue.
You should be, since you might be one of the many employers with employment contracts that contain termination clauses which seemed perfectly good at the time the contracts were signed, but have since been deemed invalid as a result of a series of court decisions. You should also realize that going back to repair or improve those clauses is tricky, expensive, and still vulnerable to changes in how courts protect employees.
We recently wrote with the good news that sometimes, termination clauses may be effective.
We recently became aware of another case where a motions judge determined that a particular clause was effective.
Rahman v. Cannon Design Architecture Inc. involved a contract set out in an offer letter which provided for payments upon termination not less than the “advance notice and/or applicable payments, benefits continuation, and severance pay if applicable, equivalent to the minimum applicable entitlements contained within the Ontario Employment Standards Act, 2000, [“ESA”] as amended, or any applicable successor legislation”.
A following clause clarified that the employer’s maximum liability “for common law notice, termination pay, benefits continuation, severance pay, or payment in lieu of notice shall be limited to the greater of the notice required in your Officer’s Agreement or the minimum amounts specified in the ESA”.
Ms. Rahman was considered a sophisticated party, which is different from the rank and file employees generally protected by the courts. She also took an opportunity to receive independent legal advice before accepting the terms. There was back and forth negotiation of some terms, including the termination pay. Therefore, she understood what she was getting herself into.
The best argument, according to the judge, was the suggestion that the agreement permitted dismissal only for cause as defined in the ESA (which is much narrower than the common law right to terminate).
The judge decided that the standard required of employers is not perfection. He determined that there was a clear mutual intention to comply with the ESA, and that intention was sufficient that ambiguities would not be read strictly in the Ms. Rahman’s favour. The pay she was to receive was in fact more than that available under the ESA.
The judge found the clause valid on these facts.
Though this is more good news for employers, it ought not to make you complacent. It is one judge’s ruling on one set of facts. In the time since Rahman was decided, at least one judge declined to apply it, because the facts of the later case differed.
It is quite possible that the issue will be settled on appeal, but as we have seen, different cases with different facts may have different outcomes.
Neither of these cases arose in Thunder Bay, or the Northwest Region, so at the time of writing, we have no indication whether or not our local judges will continue to follow the trend of finding termination clauses to be invalid.
As we have suggested before, the cost of having a lawyer review or draft your template, or where appropriate, create a custom agreement, is modest compared to the cost of litigation. Templates should be updated regularly to keep current with the law, and it is always risky to use a form of contract found on the internet, or drafted by a non-professional.
Where you decide that you intend to terminate, Weilers LLP can also look at your existing agreement, consider all the relevant facts, and advise you regarding the potential for it to be found either valid or invalid, so that you can approach offers and negotiations on a well-informed basis.
At Weilers LLP, we also advise employees and assist them in understanding and negotiating employment contracts at the front end of the relationship, and as to their rights on termination. It is always smart to gave a lawyer review any termination offer before you accept it.
 Tip of the hat to Canadian Lawyer Magazine and their recent special feature from Sherrard Kurz lawyers on this case. Though this article brought the case to our attention, we wrote our take as much as possible from the actual decision in the case, with comments based upon our experience.