Finding the right words (issue: employment contracts), Canadian Employment Law Today (May 15, 2013)

Finding the right words (issue: employment contracts), Canadian Employment Law Today (May 15, 2013)

By Nikolay Y. Chsherbinin

Words are the voice of contracts. That voice guides a court during interpretation of a termination provision in an employment contract. A lesson from a recent case, Employments Standards Act, 2000Stevens v. Sifton Properties Ltd., suggests if the termination clause contains no explicit reference to continuation of benefits during the period of statutory notice, it will be struck as unenforceable. Thereby, exposing employers to the golden smelter of the reasonable notice doctrine, when calculating the dismissed employee’s entitlements.

Deborah Stevens began employment as an associate golf professional at the Riverband Golf Community in May 2007. In December 2007, she assumed the position of head golf professional, which was governed by an employment letter. The letter set out the termination provision as follows: “The corporation may terminate your employment without cause at any time by providing you with notice or payment in lieu of notice, and/or severance pay, in accordance with the Employment Standards Act of Ontario.”

On Oct. 19, 2010, Stevens’ employment was terminated without cause, effective immediately. At the time of termination, the employer paid her a sum representing three weeks’ pay in lieu of notice and continued her group benefits for three weeks.

Notwithstanding the employer’s voluntary provision of benefits, Stevens sued for wrongful dismissal. She successfully argued the termination provision was null and void because it did not contemplate the provision of benefits during the notice period, contrary to ss. 61(1)(b) and 5(1) of the Employments Standards Act, 2000 (ESA). The former section compels employers to continue benefits during the period of notice, while the latter forbids them from contracting out of this employment standard.

Relying on the wording in the termination provision, the employer argued that while the provision did not refer to benefits expressly, it addressed the employee’s entitlement to benefits implicitly, because it stated: “you agree to accept the…payment in lieu of notice and/or severance pay…in satisfaction of all claims and demands…which may arise out of status or common law with respect to termination of your employment….”

Justice I.F. Leach of the Ontario Superior Court of Justice disagreed, stating the employee has rights to benefits continuation arising “out of statute” and the termination provision, on its face, purported to take those away upon mere payment of the required payment in lieu of notice or severance pay.

For Justice Leach, the failing of the termination provisions was that they attempted to “draw the circle” of employee rights and entitlement on termination with a catch-all specificity that resulted in impermissible exclusion and denial of the benefits continuation rights mandated by the ESA. In coming to this conclusion, Justice Leach relied heavily on Justice Wailan Low’s analysis in Wright v. Young & Rubicam Group of Cos., a case that bears close affinity on facts to Stevens.

In Wright, Justice Low did not accept the defendant’s position that the impugned termination provision did not exclude benefits during the statutory notice, even though it stated: “this payment will be inclusive of all notice, statutory, contractual and other entitlements.” She observed that the termination provision did not contemplate the question of benefits, which are implicit to continue for the statutory notice period in accordance with paragraph 61(1)(b) of ESA. She went on to explain the termination clause provided for payment of base salary only. If such payment is to be treated as inclusive of all entitlements to compensation, it means there will be no compensation flowing to the employee with regards to the benefits, which are an integral part of compensation.

Possibility of employment standards violation enough to void provision

The Stevens and Wright decisions illustrate that the court will void the termination provision whenever there is a possibility that an employment contract provides an employee with less than to what she would be entitled under the applicable employment standards legislation. Their rationale finds support in Slepenkova v. Ivanov, which stands for the proposition that the termination provision will be void and unenforceable if it “potentially” violates employment standards. The Stevens and Wright decisions also reinforce an important point that if the interpretation of the words of the termination provision suggests an alternate reasonable meaning, the courts would interpret it as an ambiguity, discarding it favour of an employee, pursuant to application of the contra proferentum doctrine.

In Wright, Justice Low opined: “there is, in my view, no particular difficulty in fashioning a termination clause that does not violate…the minimum standards imposed by the (ESA)….” In Stevens, Justice Leach granted a summary judgment, stating: “ employers should be provided with incentive to ensure that their employment contracts comply with all aspects of the employment standards legislation, including provision of adequate notice…and benefit continuation.”

Taken together, these pronouncements serve as a loud message to employers: “Your employment contracts will be invariably struck down if they fail to satisfy the minimum employment standards at any point in an employment relationship.” Notably, if the termination provision is silent about the benefits, an employer’s voluntary provision of benefits during the statutory notice is of no consequence to its liability, because it would not alter the fact that the employment contract was void ab initio for violating the ESA.

LESSONS FOR EMPLOYERSFor employers, these decisions underscore the importance of precise and explicit language in employment contracts, especially when drafting termination provisions. Properly drafted severance clauses may substantially reduce employers’ liability for damages and shield them from the dismissed employee’s lawyers’ creative arguments.

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