Home»Clarifying the Language Required to Make a Termination Clause Enforceable

Limiting employee’s common law rights on termination

Autumn 2016

In our Spring 2015 newsletter, we discussed how an employer can limit its liability on terminating the employment of its employees.  This newsletter provides an update on that law.

Courts and other adjudicators have long held that an employer and employee can agree on how much notice the employer has to give in order to terminate the contract if there is not just cause.  Usually, the parties would agree on that notice when the employee is hired, and include it in a written employment contract.  As long as it provides at least the minimum notice required by any governing statute, that agreement would typically be enforced.  Over the years, though, there has been commentary on what language is actually required to ensure that the agreement will be enforced.  The Nova Scotia Supreme Court (the “NSSC”) recently weighed in on issue.  In Bellini v Ausenco Engineering Alberta Inc., 2016 NSSC 237 (“Bellini”), the NSSC clarified the language required in order for a court to enforce a termination clause within an employment contract.  In this newsletter, we share the Court’s analysis with you.

Facts

Bellini was a Senior Mechanical Engineer.  He signed an employment contract (the “Contract”) with the employer, Ausenco, in July 2012.  His years of service with PROJEX Technology, the company which Ausenco had purchased, were recognized in the Contract.

The Contract set out how it could be terminated if there was not just cause.  It stated:

If it becomes necessary for us to terminate your employment for any reason other than cause, your entitlement to advance working notice or pay in lieu of such notice, will be in accordance with the provincial employment standards legislation.

The Employer terminated Bellini’s employment due to lack of work on June 17, 2015.  They paid all outstanding wages and benefits, and gave him two weeks’ salary in lieu of notice.

Even though that payment satisfied his entitlement under the Contract, Bellini challenged whether the Contract limited his ability to seek reasonable notice.  In essence, Bellini argued that the Contract simply said that he would get the notice required by the Labour Standards Code (the “Code”) but did not expressly take away his ability to claim reasonable notice.

Analysis

A review of the law terminating employment contracts may be helpful.  In Nova Scotia, an employer actually has to provide two types of notice: “statutory notice” under the Code and reasonable notice at common law.  An employee cannot receive, or agree to receive, less than the statutory notice set out in the Code.

The key issue in Bellini was the interpretation of the Contract, and whether the termination provision limited the employee’s entitlement on termination of employment to the statutory minimum under the Code, or if he could also claim his common law right to reasonable notice.  Bellini argued that as the employment contract did not expressly take away his right to claim reasonable notice, he was still entitled to it.

In Nova Scotia, the amount of statutory notice owed to an employee is determined by Section 72 of the Code.  Under the Code, entitlements are based on an individual employee’s length of service.  Notice provided to employees must meet the following standards (in writing):

Employee’s Length of Service Notice
3 months to 2 years 1 week
2 years to 5 years 2 weeks
5 years to 10 years 4 weeks
More than 10 years 8 weeks

 

While there is no fixed formula for calculating reasonable notice, the most important factor is the employee’s length of service.  It is not uncommon to see employees receive notice from two weeks of notice per year of service to four weeks of notice per year of service.

Employers and employees have long been able to predetermine notice requirements by agreement. The one limitation is that the agreed-upon amount cannot violate the required statutory notice set by the respective employment standards legislation regarding notice.

However, courts and other adjudicators have largely held that in order to limit an employee’s ability to seek reasonable notice at common law, there must be clear and express language in an agreement expressly removing an employee’s right to do so.

Decision

The issue in Bellini was whether the language in the Contract was clear enough to prevent Bellini from getting reasonable notice at termination.

After reviewing the substantial amount of case law put before him, Justice LeBlanc held that the termination provision in the Contract did not remove or limit Bellini’s right to claim reasonable notice.  Justice LeBlanc held that in order to do so, the employment contract had to clearly restrict any notice requirement to entitlements under the Code.

Justice LeBlanc contrasted the wording of the provision in the Contract with other employment agreements which had been challenged for ambiguity before the courts.  One example where the limiting clause was upheld as being sufficiently clear to prevent an employee from receiving common law reasonable notice was in Clarke v. Insight Components (Canada) Inc., 2008 ONCA 837 (“Clarke”).

In Clarke, the challenged provision read:

“…your employment may be terminated without cause for any reason upon the provision of reasonable notice equal to the requirements of the applicable employment or labour standards legislation”, and that “…no further amounts will be due and payable to you whether under statute or common law.”

However, Justice LeBlanc contrasted the language from Clarke with the provision in the Contract, noting that the provision in question was “at best ambiguous as to whether the parties intended the statutory minimum to apply, or simply whether the applicable notice would be consistent with the legislation.”

Accordingly, Bellini was entitled to reasonable notice at common law, in addition to the statutory notice referenced in the Contract.

Reasonable Notice

In determining the amount owed to Bellini under the common law, Justice LeBlanc turned to the factors set in the Bardal v Globe & Mail Ltd. (1960), 24 D.L.R. (2d) 140 (Ont. S.C.-H.C.J.) decision.  These factors are:

  1. The character of the employment;
  2. The length of service of the employee;
  3. The employee’s age; and,
  4. The availability of similar employment, having regard to the experience, training, and qualifications of the employee.

As discussed above, reasonable notice often reflects a formula of between two and four weeks of notice for each year of service.  The relative weight of each of these factors varies on the circumstances, and the total amount of pay in lieu of notice provided is highly fact-specific.  Ultimately, after weighing the factors, the NSSC determined that Bellini was entitled to six (6) months’ pay in lieu of notice.

Conclusion

Employers should be very careful when drafting employment contracts, especially with respect to provisions limiting entitlements on termination of employment.  The language used in an employment agreement must clearly say that the employee is giving up his or her right to reasonable notice, if it is to be enforced by the courts.

This newsletter is produced by Wickwire Holm to keep our clients and friends informed of developments in the law and immerging issues. It is intended for general information purposes only. In preparing and circulating this newsletter, Wickwire Holm is not providing legal or other professional advice. Readers are urged to consult their professional advisers before taking any action on the bases of information contained in this newsletter.  If you have any questions about any issues raised within this newsletter or a related issue, please contact us at wh@wickwireholm.com or 902.429.4111.

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