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Employment contract termination clauses may not be worth the risk

First, the good news: This article is not about Ontario’s Bill 148 or minimum wage.

Now, the bad news: This is the fourth article I have written for this publication within the last year and a half about the uncertainty and lack of predictability in drafting and interpreting termination without cause provisions in employment contracts. This is due to seemingly conflicting (or hard-to-decipher) decisions from the Court of Appeal for Ontario over that time.

Each of my previous three articles focused on a different case. My most recent article was from October, 2017 when it seemed like much of the legal instability plaguing employment lawyers over the previous year had been resolved due to the court’s decision in North, which followed many practitioners’ 2017 “case of the year,” Wood.

My view then was that, while there was still uncertainty, the courts were now squarely on the employee’s side (and employers at least knew where they stood). I believed then, in those halcyon days of last autumn, that we actually (or at least temporarily) knew the following “rules”:

1.      Courts will heavily scrutinize termination clauses in a manner that favours employees.

2.      If a termination clause has the potential to violate Ontario’s Employment Standards Act, 2000, then it is unenforceable.

3.      If any part of a termination clause violates the ESA, the entire clause is illegal and a severability provision will not save it.

So far, this is pretty powerful stuff, simple and predictable at the same time.

I then added two caveats:

4.      A pristinely worded termination clause may be worthless in the end through an employer’s own actions and omissions due to a failure of consideration (and, I will add here: typos, missing pages, improperly signed documents and those for which no legal advice was sought or received).

5.      But it may be safer for employers to use fewer words than less and avoid all-inclusive language (like that found in Wood and North) due to Roden, a 2005 Court of Appeal decision.

Despite rule number 5 above, I always considered the Roden decision to be something of an outlier that would simply fade away over time.

I was naïve.

In January, the Court of Appeal released its decision in Nemeth v. Hatch Ltd. Applying Roden, the following sparsely worded termination clause was deemed not to offend the ESA but at the same time displaced the common law:

“The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.”

Respectfully, in my view, the above clause violates rule numbers 1, 2 and 3 above. Clearly, rule number 5 (the “less is more” approach) was given paramountcy since there is no “all-inclusive” provision.

However, applying Wood (and rule number 1), the court (with two panel members who heard the North appeal) at least awarded the employee his 19 weeks of notice (one year for every year worked) instead of the lower ESA minimums.

Yet, the employee did not receive his potentially higher common law maximums.

Now, I am not simply pro-employee or pro-employer. I am a lawyer for both sides. I am a mediator and I am an employer. I am also pro-predictability (despite the fact I know it is difficult to attain), which is why I am having trouble accepting the reasoning in Nemeth. It does not make sense to me how an employee can be expected to have contracted out of their inherent common law rights (and perhaps even agreed to something far less) without language that somehow suggests that is precisely what is taking place!

Also, if “less is more” in this case, then another panel of the court may reach the opposite conclusion in another case. Accordingly, it may be time for the Supreme Court of Canada to weigh in on this matter of national importance (since each province has its own version of Ontario’s ESA).

Don’t get me wrong. I like to write articles (and draft, argue and mediate disputes over contractual provisions), but I am concerned about the effects of the constantly shifting winds on employers, employees and counsel. No one knows where they stand. There comes a point when the benefit of a legal tool like a contract is far exceeded by the cost to society at large.

I am suggesting that we may have reached that point unless our nation’s highest court can provide clear guidelines. It should not, and need not, be difficult to draft a termination provision that pre-determines what an employee receives by way of notice and severance, but it is still legally compliant (and fair to employees who may have unequal bargaining power)and is based on clear rules to be followed by all.

When you add rule number 4 above (the potential for employer mistakes) into the mix, I have come to the conclusion that, without clear, consistent rules, employment contract termination clauses may just be offering parties a false sense of security and a potential increase in litigation with its inherent risk, time, cost and lack of privacy and finality.

Mitchell Rose is a lawyer, mediator and settlement counsel with Stancer Gossin Rose LLP in Toronto.