Failure to comply with ESA minimums can be fatal…
At the time of an employee’s termination, the most crucial clause is typically that relating to the employee’s entitlement upon a without cause termination. It is therefore critical that the termination clause comply with the minimum provisions set out in the Employment Standards Act (the “ESA”).
This was recently demonstrated in the case of Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (“Wood”) where the Ontario Court of Appeal held that any breach of the ESA in a termination clause will render such clause unenforceable.
In Wood, the employee was hired as a sales and event planner for the employer which operated as a distributor for Harley-Davidson motorcycles. Her compensation included a base salary, incentive bonus and contributions by the employer to two benefit plans: a health and dental plan and RRSP.
The employee was terminated approximately eight years later when the employer was purchased by Harley-Davidson. The employer provided the employee with working notice of 13 weeks. In addition, the employee was also paid a lump sum equivalent to eight weeks pay.
The termination provision in question required the employer to provide two weeks’ notice or payment in lieu thereof for each year or partial year of employment. It further indicated that the employer was not obliged to make any other payments to the employee.
The employee commenced an action and moved for summary judgment wherein she contended that the termination clause contravened the ESA such that the entire agreement was unenforceable. Alternatively, she simply contended that the termination clause was unenforceable. She sought damages equivalent to 12 months’ notice of termination.
In dismissing the motion, the motions judge held that both employment agreement and termination clause were enforceable. The employee appealed.
The Court of Appeal concluded that the employee’s compensation included the employer’s contributions to the two benefit plans. While the termination clause provided the employee with two weeks’ notice of termination or pay in lieu thereof for every year or partial year of employment, it was silent with respect to the benefit contributions. Moreover, it expressly indicated that the employer would not be obliged to make any payments to the employee other than as set out in the termination clause. Accordingly, the Court of Appeal held that the termination clause contravened the ESA and allowed the appeal awarding the employee 9 months’ pay in lieu of notice.
Employers must therefore ensure that the termination clauses in their employment agreements contain clear and unambiguous language that ensures full compliance with the ESA. Although there is no indication in Wood as to whether there was a “saving/severability clause”, it would be wise to include such clause to act as a safety net in the event of an unexpected finding of noncompliance with the ESA.