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Simply complying with the ESA not enough to rebut common law presumption of entitlement to reasonable notice – ON Divisional Court

reasonable notice

Is the sole requirement to rebut the common law presumption of termination only upon reasonable notice that the contractual termination clause comply with the ESA, or is something else required?

In a decision released December 6, 2018, Movati Athletic (Group) Inc. v. Bergeron, 2018 ONSC 7258 (CanLII), the Ontario Divisional Court (Swinton, Thorburn, and Copeland JJ.) upheld an earlier decision of the Honourable Justice O’Bonsawin, 2018 ONSC 885, about which I blogged in my post Lack of Clear Warning Voids Termination Provision, which held something more is required.

In addition to upholding Justice O’Bonsawin’s decision, the Divisional Court provided some very clear, point-by-point analysis on what it takes for a contractual termination clause to sufficiently, and legally, rebut that common law presumption.

Facts

A full summary of Justice O’Bonsawin’s earlier decision is set out in my post Lack of Clear Warning Voids Termination Provision. But here is the gist of what happened.

The plaintiff, Catherine Bergeron worked for the defendant, Movati, as its General Manager of Movati’s health and fitness facility in Orleans, from August 4, 2015 to December 5, 2016. She was paid a salary of approximately $90,000 per year.

The termination clause in Ms. Bergeron’s contract of employment read as follows:

Movati Athletic Inc. may terminate your employment without cause at any time during the term of your employment upon providing you with notice or pay in lieu of notice, and severance, if applicable, pursuant to the Employment Standards Act, 2000 and subject to the continuation of your group benefits coverage, if applicable, for the minimum period required by the Employment Standards Act, 2000 as amended from time to time.

The parties agreed that the employment agreement complied with the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”).

When Movati let Ms. Bergeron go, they paid her her statutory and contractual entitlement. Nonetheless, Ms. Bergeron sued for wrongful dismissal.

In granting Ms. Bergeron’s motion for summary judgment, Justice O’Bonsawin held at paragraph 25 of her decision that,

Movati cannot rely on the termination clause in Ms. Bergeron’s employment agreement to contract out of its obligations under the common law. Consequently, Ms. Bergeron is entitled to a notice period as per the common law [of three months’ pay].

Justice O’Bonsawin had held that in order for a termination provision to displace common law rights, “a high degree of clarity is required. Any ambiguity will be resolved in favour of the employee and against the employer who drafted the agreement”. She held that the termination clause was not clear and that because it was ambiguous, the interpretation of the words must be resolved in Ms. Bergeron’s favour.

She noted that the wording did not contain any explanation or warning sign. She held that if the termination provision had contained wording such as, “upon termination, severance, if applicable will be paid only pursuant to the Employment Standards Actonly for the minimum period required by the Employment Standards Act…” the language would be rendered clear such that the presumption of reasonable notice at common law could be rebutted.

Decision of the Divisional Court

At paragraph 21 of the Divisional Court’s reasons for decision, the Honourable Justice Julie A. Thorburn wrote, “The motion judge held that the termination clause was not sufficiently clear to displace the right to common law notice. The issue is whether in so doing, she made a palpable and overriding error.”

In holding that Justice O’Bonsawin had not made a palpable and overriding error, the Divisional Court reasoned as follows:

[24] The steps to be followed in determining whether a contractual provision can rebut common law notice are as follows:

1. All contractual provisions must meet the minimum notice requirements for termination without cause set out in the ESA: Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986, [1992] S.C.J. No. 41, at p. 998;

2. There is a presumption that an employee is entitled to common law notice upon termination of employment without cause;

3. Provided minimum legislative requirements are met, an employer can enter into an agreement to contract out of the provision for reasonable notice at common law upon termination without cause: Nemeth v. Hatch Ltd., 2018 ONCA 7 (CanLII), 287 A.C.W.S. (3d) 291 (Ont. C.A.) at para. 11 citing Machtinger at pp. 1004-1005;

4. The presumption that an employee is entitled to reasonable notice at common law may be rebutted if the contract specifies some other period of notice as long as that other notice period meets or exceeds the minimum requirements in the ESA: Machtinger supra, at p. 998;

5. The intention to rebut the right to reasonable notice at common law “must be clearly and unambiguously expressed in the contractual language used by the parties”: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII), 134 O.R. (3d) 481, at para. 40;

6. The need for clarity does not mean a specific phrase or particular formula must be used, or require the contract to state that “the parties have agreed to limit an employee’s common law rights on termination”. The wording must however, be “readily gleaned” from the language agreed to by the parties: Nemeth at para. 9;

7. Any ambiguity will be resolved in favour of the employee and against the employer who drafted the termination clause in accordance with the principle of contra proferentum: Miller v. A.B.M. Canada Inc., 2015 ONSC 1566 (CanLII), 27 C.C.E.L. (4th) 190, at para. 15 (Div. Ct.); Ceccol v. Ontario Gymnastic Federation(2001), 2001 CanLII 8589 (ON CA), 55 O.R. (3d) 614 (C.A.), at para. 45; and

8. Surrounding circumstances may be considered when interpreting the terms of a contract but they must never be allowed to overwhelm the words of the agreement itself: Sattva at para. 57.

[31] The Employment Standards Act outlines what provincial legislators deem to be fair minimum notice provisions on termination.

[32] Section 57 of the ESA provides that notice of termination shall be given “at least two weeks before the termination”, if the employee’s period of employment is one year or more and fewer than three years. This sets out the statutory minimum notice to be met, given Ms. Bergeron’s length of service.

[33] The termination clause in the Agreement provides that Movati may terminate the employment without cause “at any time during the term of your employment upon providing you with notice or pay in lieu of notice, and severance, if applicable, pursuant to the Employment Standards Act, 2000 and subject to the continuation of your group benefits coverage, if applicable, for the minimum period required by the Employment Standards Act, 2000 as amended from time to time.” (Emphasis added)

[35] The question before the motion judge was whether the Agreement clearly specifies some period of notice, which meets or exceeds the minimum requirements set out in the legislation so as to rebut the presumption that reasonable notice in accordance with the common law applies: Machtinger at p. 998; and Nemeth at para. 8.

[36] The words “pursuant to the ESA” may be interpreted to mean that the notice period in the termination clause complies with the minimum requirements in the legislation, but they do not clearly provide that reasonable notice at common law no longer applies.

[41] The words “only” or “minimum” are not required language. However, the fact that the words “only” and “minimum” are used in the probation clause, and the word “minimum” is used in the group benefits provision of the termination clause, but neither is used in the notice provision in the termination clause, reflects a difference in the intention of the drafter.

[42] Based on the wording of the termination clause as seen in the context of the Agreement as a whole, the motion judge made no palpable and overriding error in concluding that the termination clause was not sufficiently clear and unequivocal to rebut the presumption that the reasonable notice requirements at common law apply: Holm v. AGAT Laboratories Ltd., 2018 ABCA 23 (CanLII) at paras. 22 and 33-36.

With respect to the issue of whether a specific warning or language had to be used, the Divisional Court wrote the following:

[48] The motion judge held that if the employer had used the term “only” that would “clearly indicate to the prospective employee that she would only be entitled to a notice period as per the ESA.” Contrary to the submission made by the Appellant Movati, the motion judge did not say that specific wording was required, but simply provided an example of wording that would be clear.

[49] Secondly, the Appellant correctly notes that there is no requirement at law to include a warning sign in a termination clause. However, although the motion judge did observe that the termination clause “did not contain any explanation of warning sign”, the legal standard she applied was whether the termination clause was sufficiently clear to rebut the presumption that Ms. Bergeron was entitled to reasonable notice in accordance with the common law. There was no palpable and overriding error in her determination that the clause was not sufficiently clear to rebut the presumption that the reasonable notice in accordance with the common law applied. (The reference to the necessity of a “warning sign” is based on the reasons in Noguiera v. Second Cup, 2017 ONSC 6315 (CanLII) that contain a misreading of Farah v. EODC, 2017 ONSC 3948 (CanLII)).

Commentary

First, and on a personal level, can I just thank whomever it was that got the Divisional Court to note that Noguiera contains a misreading of the decision in Farah? This has been a bone of contention for me for a long time, for reasons that I more fully explain in my post Undertaking to Comply with the ESA does Not Displace Common Law Presumption of Reasonable Notice. I won’t repeat that rant here, but it’s worth a read as I think it underlines the point that the decision in Farah is wrong, essentially for the reasons now observed by the Divisional Court. Indeed, the court’s observation, at paragraph 36 of its reasons that, “The words “pursuant to the ESA” may be interpreted to mean that the notice period in the termination clause complies with the minimum requirements in the legislation, but they do not clearly provide that reasonable notice at common law no longer applies.” is precisely what I argued – to no avail – in Farah. (See paragraph 53 of my factum where I wrote, “this court has held the phrase “entitlements prescribed in the Employment Standards Act, 2000” to be ambiguous, thereby failing to rebut the common law presumption of termination only upon the provision of reasonable notice.”) Oh, but I digress.

Next, I think the Divisional Court gets this one right, but for a really boring reason. Justice Thorburn’s observations at paragraphs 41 and 42 about the wording of the agreement is likely sufficient to carry the day without anyone having to worry about whether a “clear warning” is actually “required.” Some will note that the Divisional Court upheld Justice O’Bonsawin’s decision without noting the court’s observations at paragraphs 48 and 49. Those observations are important in so much as they temper some earlier readings of Justice O’Bonsawin’s decision. (Perhaps including my own.)

What does this mean for those drafting or interpreting contractual termination clauses? I think the lesson is that while there is no legal requirement to include a warning sign in a termination clause, prudence now demands that one do so. If the intention is to limit an employee to no more than the statutory minimums, then language to that effect should be used. While the Divisional Court’s decision does not appear to turn on this point, they did not wholly discount it either.

Takeaways for employees

As with all cases involving the interpretation of contractual termination provisions, the takeaway for employees with labour pains is this: If you have a contractual termination provision, then it is worth obtaining professional legal advice on it before accepting the severance package offered to you by your employer.

If you are an individual looking for assistance with respect to the interpretation or enforceability of the terms of your employment contract, then contact the professional, experienced and cost-effective employment lawyers for employees at Ottawa’s Kelly Santini LLP; we would be happy to be of service to you.

Takeaways for employers

The takeaway for employers from this case, like so many before it is to have your employment agreements reviewed by an experienced employment lawyer. The courts have made it harder and harder to have a binding termination provision, but it’s not impossible.

If you are an employer and you need to make changes to the terms of your employee’s employment, or if you want to introduce written employment agreements with your staff, then contact the professional, experienced and cost-effective employment lawyers for employers at Ottawa’s Kelly Santini LLP; we would be happy to be of service to your business or organization.

Sean Bawden

LL.B., Director,Legal (Employment and Litigation) at Labour Pain
Sean Bawden, is now a director of legal for a private company and blogging about work by an in-house lawyer which he calls “Labour Pain.”To read more click here.
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