July 9, 2024

By Brian Babcock

Judges seem to really dislike termination clauses, even in Thunder Bay and Northwestern Ontario.

THE ISSUE

We have written before about clauses in employment contracts which attempt to limit the amount of payment in lieu of notice of dismissal. They will very rarely be enforced.

How rarely?

THE CASE

In a Thunder Bay decision, Dufault v. Township of Ignace,  Madame Justice Pierce gave three separate reasons to find the clause invalid. Only one was needed. She found that:

• Limiting payment in cases of dismissal “for cause” violated the provisions of the Employment Standards Act, which only allows such limitations in cases of “willful misconduct”.
• The calculation of payments being limited to “regular wages” was also a violation.

Most interestingly, however, she agreed with the employee that including the phrase “at any time” in the provisions for dismissal without cause violated the Act because there are certain times, such as while an employee is on leave, that dismissal is not allowed.

This was a novel argument and sets a new standard.

The right to terminate, as the judge points out, is not absolute.

And even where there is a right to terminate, it may be expensive for employers.

TAKEAWAYS

• Employers like termination clauses, not only because they may limit the amounts payable, but for the certainty they think the clause provides.
• But Dufault is just another example of the illusion that these clauses create unless they are exceptionally well drafted.
• Courts tend to favour employees, who usually have less bargaining power than employers, and will often sign contracts severely curtailing their rights either out of ignorance, or because they are anxious to obtain the job and may be in denial of the fact that all good things eventually end.
• Because the law continues to evolve, even a solidly drafted clause aimed to satisfy the requirements of recent cases is no guarantee of future performance.
• Despite this, lawyer drafted clauses are still better to use, since they offer more prospect of being enforced.
• Before terminating employees, it is always advisable to contact an employment law expert, for the latest on the employee’s rights- much better to offer a realistic dismissal payment than incur the expense of litigation you might not win, and perhaps be required to pay even more money.

WHAT WEILERS LLP CAN DO TO HELP YOU

The cost of having a lawyer review or draft your employment contract 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.

We can assist with negotiating a severance package and defend employers in wrongful dismissal cases.

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 have a lawyer review any termination offer before you accept it.