27 May Limiting Language: Is Your Termination Clause Actually Effective?
When the difficult decision is made to terminate an employee, one of the first things employers often turn their mind to is how much notice or pay in lieu of notice they need to provide to the employee.
Pursuant to Alberta’s Employment Standards Code (the “Code”), in the event an employee is terminated without just cause, they are entitled to a minimum amount of notice or pay in lieu of notice depending on the length of their employment.
However, employees are also entitled to common law notice, unless their employment contract contains a termination clause limiting their entitlement to notice or pay in lieu of notice. While employment contracts are often drafted with a termination clause intended to limit the employee’s entitlement to Code notice only, many end up being unenforceable when challenged.
The courts have had differing views as to the extent a clause must go to limit an employee’s common law rights. In Alberta, termination clauses seeking to limit employee’s common right to reasonable notice must be carefully drafted to ensure they are enforceable. For example, in Holm v AGAT Laboratories Ltd., 2018 ABCA 23 (“Holm”) the employee’s termination clause stated:
In the event we wish to terminate your employment without just cause, we agree that we will give you notice of the termination of your employment, or at our absolute discretion, we will pay you, in lieu of such notice, a severance payment equal to the wages only that you would have received during the applicable notice period. This will be in accordance with the provincial legislation for the province of employment.
The employer argued this clause was sufficient to limit the employee’s entitlement to the applicable one- week minimum as set out in the Code. The Court of Appeal disagreed finding that “an enforceable employment contract must contain clear and unequivocal language to extinguish, or limit, an employee’s common law rights” and that “at best” the clause at issue was “ambiguous” should therefore be resolved in favour of the employee.
Holm was a sharp contrast to Nemeth v. Hatch Ltd., 2018 ONCA 7 (“Nemeth”), which was released just a few months prior in Ontario. In Nemeth, the Ontario Court of Appeal found it sufficed “that the parties’ intention to displace an employee’s common law notice rights [could] be readily gleaned from the language agreed to by the parties”.
If you would like assistance drafting language for a termination clause or reviewing a potentially problematic clause please contact any of the employment lawyers at Carbert Waite LLP.