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Simple Termination Clause Upheld in Problematic Decision

May 26, 2021

Simple Termination Clause Upheld

Author: Dylan Snowdon

Employment contract termination clauses often face challenges by employees seeking to increase the payment made on termination of employment, and courts have found a variety of reasons not to enforce termination clauses, such as:

The Court of Queen’s Bench of Alberta upheld the following termination clause in its May 18, 2021 decision in Bryant v Parkland School Division, 2021 ABQB 391:

This contract may be terminated by the Employee by giving the Board thirty (30) days or more prior written notice, and by the Board upon giving the Employee sixty (60) days or more written notice.

In upholding this clause, the Court moves away from an employee-friendly approach and towards a classical freedom of contract analysis.  The Court determined that the phrase “or more” is not ambiguous and that the clause provided the employer with discretion to choose how much notice would be provided upon termination of employment.

Although a detailed decision, there are some issues that may result in this decision being appealed.  The Court finds that the employer granted itself discretion in how to perform the contract despite there being no language in the contract stating that such discretion existed.  The primary issue with this finding is that if there is a discretionary component, such discretion must be exercised reasonably.  In February 2021, in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 the Supreme Court of Canada formally recognized “the duty to exercise discretion in good faith as a general doctrine of contract law.”  The secondary issue with this finding is that the Court, without much analysis, characterized the phrase “giving the Employee sixty (60) days or more” as creating a discretionary contractual power exercisable by the employer to determine how much notice to provide an employee over and above 60 days. It is difficult to reconcile the Court’s interpretation with the most common words used in law to denote discretion: i.e. “may” or the literal “at the Board’s discretion”. The Court in Bryant v Parkland fails to address these issues.

An additional potential error made by the Court is failing to appropriately consider the surrounding circumstances in interpreting the termination clause. First, in the surrounding circumstances, the parties would have understood that the employees’ termination would have been governed by the law of reasonable notice. Would an employee reading “60 days or more” not then conclude they would be entitled to at minimum 60 days’ notice? The Court finds that it was not “plausible that the parties would have intended that they would have had to determine whether the common law reasonable exceeded the minimum notice and then provide common law reasonable notice.” The Court failed to consider why such an intention was not plausible. The Court assumed the employer would have in fact had the upper-hand in negotiating severance, when it is possible that Parkland was actively recruiting employees at the time the contracts were entered into and providing beneficial terms to attract candidates.

A final potential error made by the Court is failing to consider whether the employer’s termination clause effectively extinguished the employees’ common law rights.  In its October 9, 2020 decision, Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26 the Supreme Court of Canada set aside the judgment of the Nova Scotia Court of Appeal and found that the contractual terms at issue did not clearly and unambiguously limit the employee’s common law rights; and that the common law rights therefore continued to operate.

The Court commented in Matthews that it may also be appropriate in certain cases to examine whether a clause purporting to limit or take away an employee’s common law right was adequately brought to the employee’s attention.

The Court accepted evidence confirming that the Plaintiffs’ expectations were that the termination clause set a minimum amount, with a full amount to be determined at a later time.  If this decision is appealed and the termination language is found to be ambiguous, the expectations of the parties at the time of the contract being formed will become relevant to determining an appropriate reasonable notice period.

We look forward to seeing whether this decision is brought to the Court of Appeal and will provide updates as they become available.

If you have questions about the enforceability of a termination clause in an employment contract, please contact any of the Employment Lawyers at Carbert Waite LLP.