You know what’s fun? Trying to make sense of whether the court is going to give effect to a contractual termination clause. And, in the case of Amberber v. IBM Canada Ltd., 2018 ONCA 571, the Court of Appeal for Ontario was once again asked to do just that.
As set out by Justice Douglas K. Gray, sitting ad hoc, put it in the court’s introductory words to its reasons for decision:
The issue in this case is the enforceability of a termination clause in a written contract of employment. On a motion for summary judgment brought by the employer, Justice Hebner [Justice Pamela L. Hebner of the Superior Court of Justice] held that the termination clause was ambiguous, and did not clearly set out an intention to deprive the respondent of his entitlement to damages at common law. She held the clause to be unenforceable and dismissed the motion.
The employer, IBM, was successful on appeal.
Facts
Mr. Amberber, became employed by IBM on March 30, 2015. He had previously been employed by an IBM customer, “Team Detroit”, in the United States. Upon his hiring by IBM, Mr. Amberber’s start date of September 25, 2000 with Team Detroit was recognized for most purposes, including severance under the termination provision of the contract of employment entered into between the parties.
Mr. Amberber was advised on April 19, 2016 that his employment with IBM would be terminated, without cause, effective July 8, 2016. Mr. Amberber continued working for IBM until July 8, 2016. His salary as of the date of termination was $65,507 per year.
During the period of Mr. Amberber’s working notice, between April 19, 2016 and July 8, 2016, he continued to receive benefits coverage and pension contributions from IBM. In addition to the working notice, for which he was paid, Mr. Amberber received $24,121.59 as a termination payment, which was equivalent to 19.4 weeks of salary. He actually received $22,675.50 initially, and subsequently received an additional $1,446.09 after the litigation had been commenced.
When Mr. Amberber was hired by IBM, he was subject to a written contract of employment, which included the following provisions:
SERVICE REFERENCE DATE
Your Service Reference Date (SRD) is 09/25/2000, which includes your previous service with Team Detroit. Your SRD will be used to determine vacation entitlement, retirement eligibility, entitlements upon termination of employment, eligibility for Short Term Disability benefit payments, eligibility for the Quarter Century Luncheon, eligibility for IBM’s Stock/RSU equity programs, and eligibility for a Retirement Event/Gift.
TERMINATION OF EMPLOYMENT
If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary. This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation. In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.
By Statement of Claim issued on August 16, 2016, Mr. Amberber claimed an entitlement to pay in lieu of notice at common law based upon a notice period of 16 months.
Decision of the Superior Court (2017 ONSC 6470)
IBM brought a motion for summary judgment, contending that Mr. Amberber’s claim for damages at common law was precluded by the termination clause in the contract of employment.
Mr. Amberber advanced three arguments in support of his position that the termination clause is not enforceable:
- the termination clause violates, or potentially violates, the minimum requirements of the Employment Standards Act, 2000, S.O. 2000, c.41, as amended (the “ESA”);
- the termination clause fails to rebut the presumption at common law that the employee is entitled to reasonable notice of termination; and
- IBM failed to comply with the requirements of the termination clause, and is not entitled to rely on it.
For reasons reported at 2017 ONSC 6470, Justice Hebner rejected the first and third arguments, but accepted the second. She declared that the termination provision was ambiguous, that it failed to rebut the common law presumption of reasonable notice, and that Mr. Amberber was entitled to damages at common law.
Justice Hebner effectively held that the termination clause consisted of three parts: the “options provision”; the “inclusive payment provision”; and the “failsafe provision” as follows:
Options Provision
If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary.
Inclusive Payment Provision
This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation.
Failsafe Provision
In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.
At paragraph 36 of her reasons, Justice Hebner judge noted that the “inclusive payment” provision immediately follows the “options” provision. She stated: “Clearly, the inclusive payment provision applies to the first part.”
Justice Hebner then noted that the “failsafe” provision follows the inclusive payment provision, but the inclusive payment provision is not repeated after the failsafe provision. At paragraph 38 of her reasons, she stated:
The inclusive payment provision is not repeated. In my view, it is not clear from a reading of the clause that the inclusive payment provision was meant to apply to the failsafe provision. If that were the case, then the inclusive payment provision could just as easily have been included at the end of the paragraph and could have just as easily been specified to apply to both scenarios.
At paragraph 39 of her reasons, Justice Hebner referred to the principle that any intention to rebut common law reasonable notice requirements must be clear in order to be enforceable, and any ambiguity is to be resolved in favour of the employee. She referred in this respect to the judgment of Stinson J. in Singh v. Qualified Metal Fabricators Ltd. (2016), 33 C.C.E.L. (4th) 308 (Ont. S.C.J.).
Justice Hebner’s conclusion, at paragraph 40 of her reasons, was as follows:
In the case at hand, IBM could easily have drafted a termination clause that clearly excluded the common law notice entitlement in both the options provision scenario and the failsafe provision scenario. In my view, the clause drafted is ambiguous. It is not clear that the exclusion of the common law notice entitlement applies to the failsafe provision scenario. As in Singh¸ the ambiguity must be construed against the employer.
Issues on Appeal
On appeal, IBM sought to overturn Justice Hebner’s conclusion that the termination clause was ambiguous and did not clearly exclude an entitlement to damages at common law.
IBM argued that Justice Hebner erred in failing to consider the termination clause as a whole. Rather, she artificially bifurcated the clause, and created an ambiguity that does not reasonably exist. IBM submited that Justice Hebner erred by disregarding ordinary principles of contract interpretation and arrived at an unreasonable interpretation of the clause.
IBM argued that the termination clause cannot be read as if it were two or three separate provisions. Rather, it is a single clause and must be interpreted as a whole: an employee is entitled to notice and/or pay in lieu of notice in accordance with a specified formula which satisfies the employee’s statutory and common law entitlements. If the statutory amount is greater, the employee will get that amount instead of that provided by the formula, but not damages at common law.
IBM argued that an ambiguity does not arise simply because there may be two competing interpretations of an agreement. An ambiguity exists only where there is genuine uncertainty as to which of two meanings applies, or that there are two plausible or reasonable interpretations.
For his part, Mr. Amberber sought to ‘overturn’ Justice Hebner’s conclusion that the termination clause did not violate the ESA. He argued that the failsafe provision operates in the same fashion as a severability clause which, as was held by the Court of Appeal in North v. Metaswitch Networks Corp. 2017 ONCA 790, 417 D.L.R. (4th) 429, is ineffective to make lawful a provision that is void on account of its conflict with the ESA.
Decision
Justice Gray (ad hoc), with whom Justices Doherty and Pepall JJ.A. agreed, wrote the following on behalf of the court:
[42] Since Machtinger, there have been a myriad of cases in which various courts, including this court, other appellate courts across Canada, and the Superior Court of Justice, have considered whether termination clauses are compliant with the ESA and whether they unambiguously exclude claims for common law damages. It is fair to say that not all of the cases can be easily reconciled.
[43] It is generally accepted that employment contracts are to be interpreted somewhat differently from other contracts: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 481, at paras. 26-28. This is so particularly because employees usually have less bargaining power than employers. Where a termination clause can reasonably be interpreted in more than one way, the interpretation that favours the employee should be preferred: Wood, at para. 28.
[44] Furthermore, where an employment contract is prepared by the employer, on a more or less take-it-or-leave-it basis, the ordinary contra proferentem rule would require that, in the case of ambiguity, the more favourable interpretation should be given to the non-drafting party: Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888, at pp. 899 and 900. [45] The contra proferentem principle applies only where there is a genuine ambiguity: Oudin v. Le Centre Francaphone de Toronto, 2015 ONSC 6494, 27 C.C.E.L. (4th) 86; aff’d 2016 ONCA 514, 34 C.C.E.L. (4th) 271, leave to appeal refused [2016] S.C.C.A No.391. As stated by Dunphy J. at para. 53, “Contra proferentem is not a means of finding the least favourable interpretation to the employee with a view to invalidating the contract in whole or in part.” Also see Geoff R. Hall, Canadian Contractual Interpretation Law, 3rd ed. (LexisNexis Canada: 2016), at p. 80, where the author states:
Ambiguity means something more than the mere existence of competing interpretations, otherwise parol evidence would be admitted in virtually every case. Thus the question of whether there is ambiguity is to be determined by an objective evaluation of whether there are two or more reasonable interpretations.[46] While the intention to exclude damages at common law must be clear, no particular form of words is required in order to achieve that result: Clarke v. Insight Components (Canada) Inc., 2008 ONCA 837, 243 O.A.C. 196; and Nemeth v. Hatch Ltd., 2018 ONCA 7, 418 D.L.R. (4th) 542.
[47] Contractual interpretation is now considered to be a question of mixed fact and law, to be reviewed on a standard of palpable and overriding error …
[50] An important canon of construction is that a contract must be interpreted as a whole, and not piecemeal…
[52] I will first address Mr. Amberber’s alternate argument, which he characterizes as a cross-appeal, that the termination clause violates the ESA and is not saved by the last sentence of the clause. Mr. Amberber likens that sentence to a severability clause, held to be ineffective by this court in Metaswitch, supra. I disagree.
[53] In my view, the motion judge was correct in holding that the last sentence of the clause is effective to ensure that a terminated employee receives what he or she is entitled to under the ESA. As Iacobucci J. stated in Machtinger, at pp. 1004-05, employers can readily make contracts with employees which referentially incorporate the minimum notice requirements of employment standards legislation, or otherwise take into account later changes to such acts. That being the case, the clause as a whole does not violate the ESA.
[54] The sentence in issue here is not analogous to a severability clause. It does not purport to sever any part of the termination provision. Rather, it ensures that any portion of the termination clause that falls short of the ESA must be read up so that it complies with the ESA.
[55] In the final analysis, there is no violation of the ESA, and the clause is not unlawful on that account.
[56] I will now move to the issue on which the motion judge found in favour of Mr. Amberber. She held that the clause as a whole is ambiguous, and does not exclude Mr. Amberber’s entitlement to damages at common law. She did so by construing the “inclusive payment” provision as applying only to the first part of the clause, which she characterized as the “options provision”. Because the inclusive payment provision is not repeated after the concluding sentence of the clause, (the “failsafe” provision) she held that it is not clear that the inclusive payment provision is meant to apply to the failsafe provision. Thus, according to the motion judge, it is ambiguous as to whether, in a case that is governed by the failsafe provision (that is, where the employee is guaranteed the minimum standard under the ESA), the parties intended to exclude entitlements at common law.
[57] In the result, the motion judge held that the provision is unenforceable, and that Mr. Amberber is entitled to damages at common law rather than the amounts required to be paid pursuant to the termination clause.
[58] With respect, I am unable to agree with the motion judge’s reasoning or the result.
[59] The fundamental error made by the motion judge is that she subdivided the termination clause into what she regarded as its constituent parts and interpreted them individually. In my view, the individual sentences of the clause cannot be interpreted on their own. Rather, the clause must be interpreted as a whole.
[60] When read as a whole, there can be no doubt as to the clause’s meaning.
[61] The parties have set out a formula for calculating the amounts owing to a terminated employee. The amounts owing include any entitlement under employment standards legislation and the common law. To the extent that employment standards legislation provides for something superior, the employee will receive the statutory entitlement.
[62] To the extent that the motion judge relied on the placement of the inclusive payment provision within the clause, she erred. By holding that because it was placed between the options provision and the failsafe provision it only applies to the options provision, she failed to read the clause as a whole. The failsafe provision itself modifies the options provision, and ensures that it is read up so that it complies with the ESA. To hold that the inclusive payment provision applies to only one part of the clause, but not the other, gives the clause as a whole a strained and unreasonable interpretation. In fact, if the inclusive payment provision were repeated at the end of the clause, as suggested by the motion judge, it would likely do little more than create confusion.
[63] In my view, there is no ambiguity. As stated by Laskin J.A. in Chilton v. Co-Operators General Insurance Co. (1997), 32 O.R. 161 (C.A.), at p. 169, “[t]he court should not strain to create an ambiguity where none exists.” In my view, the motion judge strained to create an ambiguity where none exists.
[64] As stated by this court in Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, 135 O.R. (3d) 241, at para. 68, “[t]he goals of certainty, clarity and consistency in the law dictate that missteps in the identification of controlling legal principles be characterized as questions of law subject to correctness review.” Failure to read a disputed contract as a whole is a question of law that is extricable from a finding of mixed fact and law: Deslaurier, at para. 75.
[65] The motion judge failed to apply well-established principles of construction. She did not interpret the termination clause as a whole; she strained to find an ambiguity where none reasonably exists; and she deviated significantly from the text of the clause. In so doing, she committed extricable errors of law that are reviewable on a correctness standard.
[66] It is clear that IBM complied with the termination clause, and in so doing also complied with the ESA. Mr. Amberber is entitled to nothing more.
In the result, IBM’s appeal was allowed, together with costs of $8,000 for the appeal and $12,500 for the initial motion, meaning that Mr. Amberber had to pay IBM $20,500 in after-tax dollars, in addition to whatever he paid his lawyers to argue the case. Hard to imagine that he came out ahead.
Commentary
This blog has considered the issue of contractual termination clauses several, several times. And, while it was nice of the Court of Appeal to name drop just about every single employment law case of consequence in the last 20 years, I am not sure that we really broke much new ground here.
What the case stands for, to me, is the proposition that employers can contract for essentially any contractual termination terms they like, so long as: (a) such terms provide for a benefit at least as good as would be provided under the ESA, and (b) they insert a “failsafe provision” such as the one employed by IBM to cover them in the event that someone later discovers some ambiguity in the greater provision.
Do I agree with the decision? I think I do. I agree with the Court of Appeal that IBM was attempting to provide Mr. Amberber with both certainty and a better severance package than that to which he would have been entitled under the ESA. It may have been less than that to which Mr. Amberber would have been entitled at common law, but it is the amount to which he contractually agreed.
This case is a win for employers. The case demonstrates that the court can and will upheld well-drafted employment contracts and termination clauses.
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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.
Photo Credit: (c) istock/relif
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