It is common when starting with a new company, or changing roles with an existing employer, to enter into an employment agreement that spells out, among other issues, the terms that will apply upon termination. Every employer is permitted to set out the terms that they wish, so long as they are meeting their obligations under the provincial Employment Standards Act (the “ESA”) with respect to notice.
If an employment contract does not meet those minimum standards, the employee is then tasked with a) noticing this, and b) enforcing their rights against their employer in court. Relying on the fact that some employees may not know their statutory rights when it comes to termination, many employers have taken to including non-compliant terms, while also including what is known as a ‘saving provision’ in the agreement to preserve the validity of the termination clause in the event that they are challenged on their notice requirements.
A savings provision will generally state that should the provisions within the termination clause fail to meet statutory minimums, that the employee will receive what they are entitled to under the ESA. In a recent decision, the Ontario Court of Appeal has definitively stated that this practice will not be tolerated.
Termination Clause Was in Direct Violation of the ESA
The plaintiff employee had been with his employer, a solar panel manufacturer, for a number of years. He began in the role of Regional Sales Manager and was eventually promoted to a project management role a few years later. At the start of both roles, he was provided with an employment contract containing similar terms with respect to termination.
The contract itself provided for a notice period of two weeks and stated that benefits would cease after four weeks. This language was followed by a clause that stated as follows:
In the event the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the notice or payments in lieu of notice contemplated under this agreement.
Under the ESA, the statutory notice period is dependant on the length of employment. Depending on how long an employee is with an employer, they may be entitled to a minimum of 8 weeks’ notice upon termination without cause. The contract signed in the case at hand was intended to apply for an indefinite period of employment, meaning that the notice and benefits clauses were in conflict with the minimum standards under the ESA once the employee had been with the company for more than three years. Even if the provisions in the contract happened to satisfy the minimum in one particular case, they were intended to apply no matter how long the employee was with the employer.
Certainty and Fairness Must Extend to All Employees
The Court of Appeal found that a saving provision is, on its face, unfair to employees and advantageous to employers. As stated earlier, it relies on the employee to notice that the termination clause does not meet ESA minimums and to enforce their rights against their former employer. Further, there is an unequal bargaining power inherent in the signing of employment contracts. It would not be right to allow employers to exploit that fact.
Employees need to know the conditions, including entitlements, of their employment with certainty. This is especially so with respect to an employee’s termination – a fragile moment of stress and uncertainty.
In this context, saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards. Holding otherwise creates the risk employers will slip sentences, like the four-week benefits clause, into employment contracts in the hope that employees will accept the terms. This outcome exploits vulnerable employees who hold unequal bargaining power in contract negotiations. Moreover, it flouts the purpose of the ESA – to protect employees and to ensure that employers treat them fairly upon termination.
The ONCA held that when a termination clause fails to meet the minimum standards under the ESA, it will not be preserved via a saving provision. Instead, the clause will be deemed unenforceable, and the employee will be entitled to common law minimums, which are often considerably more than the minimums provided under the ESA.
At Baker & Company, we take the time to meet with you and understand your unique needs in order to offer solutions to the diverse problems you may encounter in the workplace. The highly skilled Toronto employment lawyers at Baker & Company can review your employment policies and contracts to ensure that you are meeting your legal obligations while addressing and mitigating risk. Protect yourself, your workplace, and your employees. We rely on our broad base of experience and expertise to provide clear, pragmatic legal advice, and representation in litigation. Call us at 416-777-0100 or contact us online for a consultation.