June 29, 2021
Author: Matthew Bobawsky
Termination clauses in employment contracts are notoriously difficult for employers to draft. They are considered to be ‘exclusion’ or ‘exemption’ clauses and special rules are used to interpret them because the purpose of the clause is to limit or extinguish the rights an employee would otherwise have.
As a consequence, courts have required that the party who seeks to limit or extinguish a particular right must do so clearly and unambiguously and must be sufficiently precise to clearly cover the exact circumstances that have arisen.
Although the majority of termination clause cases deal with provincially-regulated employees, the Ontario Superior Court of Justice recently had occasion to consider a termination clause in the employment contract of a federally-regulated employee in Sager and TFI International Inc, 2020 ONSC 6608.
Loomis Express, a subsidiary of TFI International Inc, hired Mr. Sager in November 2016 as its Vice-President of Sales and Customer Care. Mr. Sager’s employment was governed by the terms of a written employment contract that gave Loomis the right to terminate his employment without cause by giving Mr. Sager the greater of three months’ base salary or one month base salary per year of completed service to a maximum of 12 months. The employment contract also stated that the “payment shall be inclusive of any and all requirements” that would be owing to Mr. Sager under the Canada Labour Code, RSC 1985, c L-2 (the CLC).
On July 31, 2019, TFI terminated Mr. Sager’s employment and paid him three months’ base salary in accordance with his employment contract. He then sued TFI claiming the termination clause in his employment contract was invalid as it was inconsistent with section 231 of the CLC. Section 231 of the CLC provides:
Where notice is given by an employer pursuant to subsection 230(1), the employer
- shall not thereafter reduce the rate of wages or alter any other term or condition of employment of the employee to whom the notice was given except with written consent of the employee; and
- shall, between the time when the notice is given and the date specified therein, pay to the employee his regular weight of wages for his regular hours of work.
The Court ruled that the termination clause was inconsistent with the CLC. The Court reasoned: “the meaning of the agreement is clear: Mr. Segar was entitled to a payment equal to three months of his base salary and nothing more during the notice period. This amounts to a change in Mr. Segars terms of employment during the notice, which is inconsistent with section 231(a) of the CLC.”
As a result, the Court did not enforce the termination clause in the contract and instead held that Mr. Sager was entitled to a reasonable notice of termination of 9 months. The key lesson for both employees and employers is that a termination clause need to be carefully reviewed before either party tries to rely on it.
If you have questions about termination clauses in your employment contract, please contact any of the lawyers at the Carbert Waite LLP to discuss your options.