Tag: reasonable notice

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Compensation Design, Employee Contracts & Agreements Employment Law Wrongful Dismissal

Employers Cannot Rely on ‘Saving Clause’ to Preserve Unfair Contracts

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.

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Compensation Design, Employee Contracts & Agreements Employment Law Severance Packages And Severance Package Review Wrongful Dismissal

Resignation & Restarting the Clock on Terms of Service

It may be expected that any employee who resigns from their job and then later returns to the same employer will find that their ‘term of service’ is affected. It is unlikely that someone who had worked with a company for 5 years, left for two and then came back, would be entitled to pick up where they left off. However, what would happen in a situation where a long-term employee submits a resignation, and while still employed by the company, wishes to resume their employment?

A recent decision of the Ontario Court of Appeal has come down on the side of the employer in this situation, holding that the resignation must be taken into consideration, therefore creating an interrupted period of employment. This, in turn, affected the reasonable notice the employee was entitled to upon her eventual termination.

Facts of the Case

The respondent employee was a dental hygienist who had been employed with the appellant employer since 1993. In 2005, she decided to move to a new city with her fiance, and find work elsewhere. She submitted her resignation, which was accepted by her employer. While still working at the practice during the notice period, her relationship came to an end and she requested to be reinstated, as she would no longer be moving. Her employer agreed, and the employee signed a new contract of employment. The contract indicated that should she ever be terminated, she would only be entitled to the minimum notice set out in the Employment Standards Act.

Seven years later, the employee was terminated without cause. At the time of her termination, she was provided with notice pay equivalent to one week of employment. The employee brought an action for wrongful dismissal.

The Lower Court Decision

The Superior Court of Justice found that there was insufficient consideration to support the contract limiting the employee’s common law entitlement to reasonable notice. As a result, the court held that the employee had been wrongfully terminated. Further, it was determined that her damages would be based on the full period she was employed, disregarding the brief period during which she had resigned. She was awarded damages equivalent to 15 months’ notice, totalling $71,650.02.

The Appeal

The employer appealed the decision. The Court of Appeal found that there was valid conisderation to uphold the employment contract signed in 2005. The court further disagreed with the finding regarding the period of employment. The court held:

We agree with the appellant’s submissions that Ms. Theberge-Lindsay’s unequivocal resignation and re-hiring in 2005 marked a break in the employment relationship after which an entirely new contract was reached between her and Dr. Kutcher. There was consideration for that new employment contract, that is, Ms. Theberge-Lindsay’s offer to again be employed by Dr. Kutcher and his acceptance of her offer to again employ her. On this basis, the Employment Standards Act, 2000 minimum notice is the maximum amount to which the respondent is entitled, measured from 2005. On this basis, she is entitled to 7.5 weeks of salary at $1,204 per week, less $1,200 severance already paid.

It remains to be seen whether this decision will be appealed any further, but for now, it appears that a resignation, even a situation in which there is no actual break in the employment, will be found to ‘restart the clock’ with respect to an employee’s term of service.

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 will review and draft employment agreements and advise on termination packages in order to protect employers from future litigation. We also provide practical and effective representation for employees faced with wrongful dismissal by their employer. 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.