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Termination Clauses: Simplicity still has challenges.

June 30, 2022

employee contract

Author: Mihai R. Beschea

The Court of Appeal of Alberta recently struck a relatively simple termination clause in an employment contract. In Bryant v Parkland School Division, the Court of Appeal struck the following termination clause:

[t]his contract may be terminated by the Employee by giving to 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.

The Court of Appeal reversed the Chamber Judge’s decision, which upheld the termination clause, and found the clause ambiguous and insufficiently clear. In a previous blog post, we discussed issues with the problematic lower court decision.

The majority opinion of the Court of Appeal applied principles of contractual interpretation to assess the termination clause. The Court states that the starting point to interpret an employment contract is the presumption that it contains an implied term requiring the employer to provide reasonable common law notice of dismissal. Common law notice is often much higher than what is outlined in the Employment Standards Code. An employer can rebut that presumption, but the language must be clear and unambiguous to be effective. In this case, the majority of the Court held that the language “sixty (60) days or more” was not sufficiently clear and unambiguous.

The majority’s reason is that the clause does not fix the employees’ notice entitlement. It does not impose an upper limit on the amount of notice and does not suggest that 60 days is the maximum notice. The inclusion of the words “or more” recognizes a more extended notice period which was not specified, and as such, the clause was ambiguous.

The Court further states that if the termination clause only contained the word “60 days”, it would have been sufficiently clear to be upheld.

Dissenting Opinion

The Court also contained a dissenting opinion written by Justice Slatter, who believes that the termination clause ought to have been affirmed, and the notice period is limited to 60 days. In Justice Slatter’s view, the analysis should take a different approach:

[t]he proper approach is not to examine the clause to see if it is ambiguous. The analysis starts with the assumption that the employee is entitled to common law reasonable notice, and the contract must be examined to see whether it unambiguously limits that right (para 28).

In Justice Slatter’s view, the clause effectively limits common law reasonable notice because it places a ceiling on the length of notice required. Justice Slatter considers that this clause puts a ceiling or a cap on the amount of mandatory or required notice. Sixty days is the mandatory notice, and the employer could not provide any less than that. This rebuts the presumption of common law reasonable notice, and there is no ambiguity that this presumption is rebutted.

Key Take Away

The majority and minority opinions take two different approaches to assess the termination clause. The majority of the Court starts by asking whether or not the clause is ambiguous. Since there is no upper limit or cap on the reasonable notice period, two outcomes are possible: (1) a notice period of 60 days or (2) a notice period of longer than 60 days. For most of the Court, this is sufficient to render the clause ambiguous. Justice Slatter takes a more nuanced approach and asks if the clause removes the common law notice period and whether it does so unambiguously. Since it contains a mandatory notice period for employers, that’s sufficient to unambiguously oust the common law.

Courts continue to weigh two approaches to termination clauses: the employee-friendly approach or the freedom of contract approach (generally more favourable to employers). This decision highlights the need to draft termination clauses as clearly as possible, which can be notoriously challenging as this point of law is constantly evolving.

The employer, in this case, will likely be required to pay a common-law reasonable notice entitlement. The employees, in this case, had 10 and 15 years of service, meaning their reasonable notice entitlement will be significantly higher than 60 days.

We recommend that employers work with legal counsel to review their employment agreements to minimize the risk of litigation and lengthier reasonable notice periods when employees are let go.

If you have questions about your company termination clauses, please contact any of Carbert Waite’s employment lawyers.

Carbert Waite LLP