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Termination clause and the importance of the word “minimum”

termination clauseEmployees are entitled to reasonable notice upon termination of their employment. However, a termination clause contained in an employment contract may oust the employer’s obligation to provide reasonable notice, so long as the termination clause actually limits the employee’s entitlement to notice, without violating employment standards.

A recent Alberta Court of Queen’s Bench case, Nutting v Franklin Templeton Investments Corp, 2016 ABQB 669, considered not whether a termination clause violated employment standards, but whether the language of the termination clause actually ousted the presumption of reasonable notice.

The employment contract in Nutting contained the following termination clause:

Additionally, your employment may be terminated at any time without cause upon the provision by FTIC of the minimum notice of termination, or pay in lieu of notice, benefits and, if applicable, severance pay prescribed by applicable employment standards legislation in the province in which you are employed. The provision of such notice or pay in lieu of notice, benefits and severance pay constitutes full and final satisfaction of all rights or entitlements which you may have arising from or related to the termination of your employment (including notice, pay in lieu of notice, severance pay, etc.), whether pursuant to contract, common law, statute or otherwise.

At trial, the employee argued that the termination clause failed to explicitly oust his entitlement to common law reasonable notice because it was unclear whether the language left open the ability to pursue more than the period of notice prescribed by Alberta’s Employment Standards Code, 2000. In other words, the employee put forth that the content of the termination clause did not actually confine him to some expressed maximum amount of notice.

The court, nonetheless, found otherwise, holding that the termination was unambiguous:

The language in this Agreement limits the Plaintiff expressly to “the minimum notice of termination, or pay in lieu of notice, benefits and, if applicable, severance pay prescribed by applicable employment standards legislation in the province in which you are employed.” That is a necessary reference to s 56 [of the Employment Standards Code, 2000] which prescribes certain minimum notice requirements. An employer must provide “at least” those amounts of notice and those minimum standards cannot be avoided: s4. [Emphasis in original]

The court distinguished earlier cases where the termination clause did not expressly limit notice because those termination clauses did not use the word “minimum” in the context of notice as prescribed by employment standards. For example, in the Alberta Court of Appeal’s decision in Kosowan v Concept Electric, 2007 ABCA 85, the termination clause read:

…Should you be terminated for reasons other [than] cause then you will be entitled to notice or severance pay thereof in accordance with the Employment Standards Act of Alberta.

The court held that the Kosowan termination clause contrasted dramatically with the Nutting termination clause that referred specifically to the “minimum” requirements of employment standards. The court stated:

The Kosowan language did not attempt to limit the employee to the “minimum” requirements of the Code. That is important and is a point made by the Ontario Superior Court of Justice in Miller v. A.B.M. Canada Inc., 2014 ONSC 4062, where Glithero, J stated:

While counsel for the plaintiff submits that a termination clause simply stating that an employee is entitled to compensation in accordance with the legislation does not restrict the employee to the minimum notice period provided, that submission is based on Kosowan v Concept Electric Ltd, 2007 ABCA 85. The factual difference in that case is that the termination clause did not provide that the employee was to receive the “minimum” notice period as was provided for in the contract in this case. In this case the termination clause did specify that the minimum legislated notice was contemplated.

Thus, in the result, the Nutting court held that the termination clause clearly limited the employee to notice as prescribed by the Employment Standards Code, 2000, since it stated that he was entitled to “minimum” notice as “prescribed by applicable employment standards legislation”, rather just “notice” as “prescribed by employment standards legislation” (without the word “minimum”).

 Nevertheless, I do believe that even if the Nutting termination clause had failed to use the word “minimum”, then it may have been saved by the second part of the same passage, which provided that such notice constituted “full and final satisfaction of all rights”, including “common law” (reasonable notice). This line of reasoning is supported by the Ontario Court of Appeal, which, in Clarke v. Insight Components (Canada) Inc., 2008 ONCA 837, upheld a termination clause without the word “minimum” because, in part, that termination clause expressly ousted the “common law” by specific reference, thus clearing up any ambiguity. The termination clause there read:

Termination of Employment–Your employment may be terminated for cause at any time in which event you shall be entitled to only the amount of your salary and vacation pay earned up to the effective date of termination.  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. By signing below, you agree that upon the receipt of your entitlements in accordance with this legislation, no further amounts will be due and payable to you whether under statute or common law. [Emphasis added.]

What this means for employers

When drafting a termination clause to limit an employee to notice “according to” or “as prescribed by” employment standards, do include the word “minimum” in the same passage. At the same time, always be sure to state that such notice displaces the right to “common law” reasonable notice.

Jeff Dutton

Employment Lawyer at Dutton Employment Law
Jeff is a leading employment lawyer in Toronto. He represents both individual employees and management in all matters. Prior to founding Dutton Employment Law, Jeff was a prosecutor for the Ministry of Labour. He has been successful at the Ontario Labour Relations Board, Ontario Court of Justice and the Ontario Superior Court. Jeff is a frequent lecturer on employment law matters and has been widely published in newspapers and trade journals. Read more.

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