This case serves as a reminder to Ontario employers to carefully draft the termination clause upon which they intend to rely when dismissing without cause.
A recent summary judgment motion before the Ontario Superior Court of Justice, Amberber v. IBM Canada Limited, serves as an important reminder to employers of the need to draft contractual termination clauses with a high degree of clarity, or risk unanticipated liability in the event of a without cause dismissal.
The Plaintiff in this case, Noah Amberber (“Amberber”), began work with Team Detroit in September 2000. In early 2015, IBM acquired Team Detroit and offered continued employment to Amberber. In so doing, IBM, expressly recognized Amberber’s prior service for the purposes of severance.
Amberber signed an employment agreement that included a termination provision (the “Termination Clause”):
TERMINATION OF EMPLOYMENT
If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary. This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation. In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.
In April 2016, IBM made the decision to dismiss Amberber from employment as part of broader strategy to reduce costs. As such, by letter dated April 19, 2016, IBM informed Amberber that his employment would end effective July 8, 2016 (11 weeks, 3 days of working notice) and that he would further receive 18 weeks of base salary as a severance payment (for a total severance package of 29 weeks, 3 days). As of the date of dismissal, Amberber was 57 years old, and had recognized service with IBM totalling 15 years and 10 months.
In June 2016, counsel sent a letter to IBM on Amberber’s behalf advising the company that it had failed to comply with the requirements of the Termination Clause, and that regardless the Termination Clause was unenforceable. IBM failed to respond to the letter. Consequently, in August 2016, Amberber commenced a claim seeking damages for wrongful dismissal. Over two months later, on November 4, 2016, IBM made an additional payment to Amberber reflecting unpaid contractual termination payments.
IBM brought a summary judgment motion to dismiss Amberber’s claim on the basis that the Termination Clause was dispositive of his severance entitlements. Amberber contested the motion, raising three issues:
- The Termination Clause violates, or potentially violates, the Employment Standards Act, 2000 (“ESA”);
- The Termination Clause fails to rebut Amberber’s presumed entitlement to common law reasonable notice of termination; and regardless
- IBM failed to comply with the requirements of the Termination Clause, and as such, was unable to rely on it.
Justice Hebner refused to find that the Termination Clause violated the ESA, or that IBM deliberately paid Amberber less than the Termination Clause required – finding instead that this was solely a mistake. However, Justice Hebner accepted Amberber’s argument that the Termination Clause failed to rebut Amberber’s presumed entitlement to common law reasonable notice. She held:
The plaintiff’s argument #2 is the argument that causes significant difficulty for the defence. On reading the termination clause, although it is one entire paragraph, it breaks down into two parts. The first part of the clause (the options provision) entitles the employee to:
“…notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary.”
The inclusive payment provision immediately follows the options provision. Clearly, the inclusive payment provision applies to the first part.
The second part of the clause (the failsafe provision) then follows:
“In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (“statutory entitlements”) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.”
The inclusive payment provision is not repeated. In my view, it is not clear from a reading of the clause that the inclusive payment provision was meant to apply to the failsafe provision. If that were the case, then the inclusive payment provision could just as easily have been included at the end of the paragraph and could have just as easily been specified to apply to both scenarios. (paras 35-39)
Accordingly, Justice Hebner dismissed IBM’s motion, noting that the company “could easily have drafted a termination clause that clearly excluded the common law notice entitlement in both the options provision scenario and the failsafe provision scenario.” (para 40)
Lessons from this case
This case serves as an important reminder to Ontario employers to carefully draft the termination clauses upon which they intend to rely in the event of a without cause dismissal, or risk unintended liability. The courts are increasingly holding employers to a high degree of clarity in assessing whether a termination clause successfully rebuts an employee’s presumed entitlement to common law reasonable notice.
- Process matters: understanding the procedural duty to accommodate - November 18, 2022
- Fixed term contracts strike again - October 14, 2022
- Termination clause update: ousting the common law and the danger of fixed penalties - September 16, 2022