If a termination provision in an employment agreement does not technically violate the provisions of the Employment Standards Act at the time of termination, but has the potential to do so at other times, is it still enforceable? “No” says the Ontario Superior Court of Justice.
In a decision released in August of 2011, Wright v. The Young and Rubicam Group of Companies (Wunderman), 2011 ONSC 4720 (CanLII) the Honourable Justice Wailan Low held that a termination provision that failed to provide for the continuation of benefits and had the potential to be offside the provisions of the Ontario Employment Standards Act, 2000 was not, and would never be, enforceable by the employer.
Facts
The plaintiff, John Wright was hired on December 20, 2004 as the defendant’s executive vice president and director of integrated marketing. His employment commenced on January 10, 2005. Amongst other things his employment agreement contained a provision concerning termination without cause as follows:
The employment of the Employee may be terminated by the Employee at any time on 2 weeks prior written notice (one week’s notice during Probationary Term), and by the Company upon payment in lieu of notice, including severance pay as follows:
a) during Probationary Term – one week’s notice;
b) within two years of commencement of employment – four (4) weeks Base Salary;
c) after two and up to three years after commencement of employment – six (6) weeks’ Base Salary;
d) after three but less than five years after commencement of employment – eight (8) weeks' Base Salary;
e) five years or more and up to ten years after commencement of employment – thirteen (13) weeks' Base Salary, plus one (1) additional week of Base Salary for every year from 6–10 years of service up to a maximum of 18 weeks;
f) after more than ten years but less than 19 years from the commencement of employment – six months’ Base Salary;
g) After 19 years or more from the commencement of employment – 34 weeks' Base Salary (or eight months)
This payment will be inclusive of all notice statutory, contractual and other entitlements to compensation and statutory severance and termination pay you have in respect of the termination of your employment and no other severance, separation pay or other payments shall be made.
Mr. Wright’s employment was terminated without cause effective immediately on February 1, 2010, at which time he had worked for the defendant for just over five years. Accordingly, he was entitled to 13 weeks of base salary, which at the time exceeded the minimum requirements of the Ontario Employment Standards Act, 2000.
On termination, the defendant provided the plaintiff with 13 weeks of base salary ($71,250), 13 weeks of RRSP matching contributions ($3,208.34), 13 weeks of car allowance payments ($3,500), 13 weeks of parking allowance payments, and 13 weeks of continued group benefits coverage with the exception of disability and life insurance which were discontinued at the end of his statutory notice period.
Employee’s Argument
As set out in paragraph 12 of Justice Low’s reasons for decision:
The plaintiff’s position that the employment agreement provisions for termination are unenforceable rests on two separate deviations from the requirements of the Employment Standards Act: first, that the termination provision does not provide for benefits but instead, specifically excludes them contrary to s. 61(1) of the [ESA], and second, that the amount of pay in lieu of notice provided in the agreement is less than the aggregate statutory minimums, in certain circumstances, than those stipulated in s. 57 of the [ESA] together with severance pay entitlement under s. 64(1) and 65(1) of the [ESA].
Decision
With respect to the employee’s argument about the failure to continue benefits vitiating the enforceability of the employment agreement, Justice Low held that:
[16] Benefits are part of the compensation. Benefits are purchased for the employee by payments made by the employer to a benefits provider. This agreement was drawn by the employer. Even if there is an ambiguity, the ambiguity should be resolved in accordance with the principle of contra proferentum. The fact that the defendant continued benefits for the statutory notice period under the [ESA] does not change the meaning of the language used in the agreement stipulating that the payments under the termination provisions are to be inclusive of “all … entitlements to compensation”. The agreement provides for payment of base salary only. Payment of base salary, if treated as inclusive of all entitlements to compensation, means that there will be no other compensation flowing to the employee – in short, no benefits.
In the result Justice Low held that, “In my view, the clause excludes benefits and is therefore in violation of s. 5(1) and s. 61(1)(b) of the [ESA].”
With respect to the employee’s arguments that there may have been times at which the employment agreement would not have provided at least the minimum amounts of termination pay required by the ESA, Justice Low found that at various specific intervals that would have been the case. Accordingly Her Honour held that:
[36] There is, in my view, no particular difficulty in fashioning a termination clause that does not violate either the minimum standards imposed by the Employment Standards Act or the prohibition against waiving statutory minimum requirements and there is no compelling reason to uphold a termination clause which the draftsman may reasonably be understood to have known was not enforceable either at all or under certain circumstances.
In the end, the employment agreement was struck down and Mr. Wright was awarded 12 months’ pay in lieu of notice. At a salary of $285,000, this translated into a difference of 39 weeks or roughly $213,000!
Commentary
This blog has often taken the position that the failure to make provision for disability benefits throughout the complete notice period will be grounds to void any termination clause. It would appear that Justice Low expressly affirmed that position in her reasons for decision at paragraph 16. And, if there was any ambiguity with respect to the argument that the failure to maintain benefits throughout the whole of a notice period would void an employment agreement, Justice Leach made that express point in the case of Stevens v. Sifton Properties Ltd., 2012 ONSC 5508 (CanLII), which is summarized by this blog in the post No Termination Agreement Without Benefits.
Takeaways for Employers with Labour Pains
$213,000 for a drafting error should send a very serious message: a well-written employment agreement is worth its cost.
Although the cost of a lawyer to draft an employment agreement may seem high, (typical cost to prepare one will be between $500 and $750) as cases such as this one (and others such as Brito v. Canac Kitchens, 2011 ONSC 1011 (CanLII), affirmed by the Court of Appeal for Ontario, 2012 ONCA 61, summarized by this blog in The Requirement to Maintain Disability Benefits on Dismissal demonstrate, a poorly drafted employment agreement is no agreement at all. The consequences of which can be very costly for employers.
The takeaway for employers is therefore to always consider hiring an employment lawyer to draft your employment agreements. If you are looking for an employment agreement, the employment lawyers at Kelly Santini LLP would be happy to speak to you.
Takeaways for Employees with Labour Pains
The takeaway for employees is that simply because you have an employment agreement with a termination provision does not necessarily mean that you have to accept the amount of notice set out in the agreement. If you have been fired, and your employer is trying to provide only as much notice as is set out in an employment agreement it would be very prudent to seek professional legal advice from an employment lawyer, such as the employment lawyers at Kelly Santini LLP, before making any final decisions with respect to your case.
Contact Us
To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260. You may also use the contact box at the top of this page.
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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
Sean Bawden, publisher of Labour Pains, can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321.
Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. He is also a part-time professor at Algonquin College teaching Trial Advocacy for Paralegals and Small Claims Court Practice.
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