A termination provision does not have to state that the parties have agreed to limit the employee’s common law rights on termination. Rather, employers must use clear language to specify that something other than the common law will apply.
Last month, the Court of Appeal for Ontario released its decision in Nemeth v. Hatch Ltd. garnering a lot of attention within the province’s employment law bar. In Nemeth the Court of Appeal was asked to determine whether the following termination provision failed to rebut Mr. Nemeth’s presumed common law entitlement to reasonable notice of dismissal:
The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.
Mr. Nemeth argued that it is necessary to include an explicit stipulation in a termination provision to displace the common law. The Court rejected this argument, confirming, in accordance with the Supreme Court of Canada’s instruction in Machtinger v. HOJ Industries, that the common law presumption will be rebutted where the employer “clearly specifies some other period of notice, whether expressly or impliedly.”
Accordingly, employers are not required to use a specific phrase or formula in order to rebut the common law. They do not have to state, for example, that “the parties have agreed to limit the employee’s common law rights on termination.” Rather, employers must use clear language to specify that something other than the common law will apply. This can be done in a number of ways:
- A termination provision that provides entitlements solely in accordance with minimum employment standards legislation; or
- A contractual entitlement (i.e. 3 weeks pay per year of service) that complies with minimum employment standards legislation and is, on its face, something other than the common law.
The Movati decision: Termination clause found unenforceable
As the interpretation of termination provisions continues to be a frequent point of contention and conflicting law, how the lower courts would elect to apply Nemeth has been an open question.
Accordingly, the recent decision of Bergeron v. Movati Athletic (Group) Inc. is significant. It is (to our knowledge) the first Ontario decision to assess the enforceability of a termination provision in light of Nemeth.
The facts in Movati were straightforward. Ms. Bergeron was employed by Movati as General Manager of its Orleans fitness club for around 16 months prior to her without cause dismissal. Upon termination, Movati provided Ms. Bergeron with her entitlements pursuant to the Employment Standards Act, 2000 and asserted that the termination provision in her written employment agreement precluded her from receiving common law reasonable notice.
The termination provision in questions reads:
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.
Ms. Bergeron brought a claim for wrongful dismissal, and moved for summary judgment, seeking common law reasonable notice inclusive of salary, benefits and bonus payment.
Justice O’Bonsawin awarded summary judgment in favour of Ms. Bergeron, finding that the termination provision was inoperative to rebut the presumption of common law reasonable notice. In so doing, the Court relied on Nemeth for the principle that in order for a termination provision to displace an employee’s common law rights, “a high degree of clarity is required and 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 proferentem.”
Justice O’Bonsawin stated that in her view: “there was not a high degree of clarity in her termination clause. As in Nogueira, Ms. Bergeron’s termination clause did not contain any explanation or warning sign and it said nothing more than Movati will obey the ESA.”
Building on this, Justice O’Bonsawin confirmed that for Movati to have been successful in its argument to exclude common law damages, it would have had to include clear language of limitation. For example, Her Honour suggested the following would have been sufficient:
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, only pursuant to the Employment Standards Act, 2000 and subject to the continuation of your group benefits coverage, if applicable, only for the minimum period required by the Employment Standards Act, 2000, as amended from time to time.
Employee bonus entitlement
The Movati decision is also significant for the way in which it dealt with Ms. Bergeron’s entitlement to damages in lieu of bonus payments. Ms. Bergeron’s bonus entitlement was set out in her employment agreement and was valued at up to 20% of her base salary.
Movati failed to institute a separate bonus plan and instead asserted that Ms. Bergeron was not entitled to receive a bonus in her claim for wrongful dismissal as she was not an employee on the date of payout (March 2017). Movati pointed to the fact that Ms. Bergeron had in the past attended at a PowerPoint presentation where it was made clear employees “must be employed and in good standing as of the payout date to be eligible for an incentive plan payment.”
Justice O’Bonsawin rejected this argument, finding that the PowerPoint presentation was insufficient to usurp the bonus language in Ms Bergeron’s employment agreement. Accordingly, the Court ordered that Ms. Bergeron receive her bonus payment for 2016 and damages in lieu of bonus on a pro-rated basis for one month and one week of 2017.
Takeaway for employers
This decision serves as an important reminder to employers to draft clear and enforceable termination provisions in order to avoid unanticipated liability upon termination. In particular, the Movati decision confirms that should an employer want to limit its obligations upon termination to the minimum entitlements required by statute, it is necessary to include clear words of limitation. While this requirement does not mandate the use of a specific phrase or formula, it must leave no doubt as to the parties’ intention to rebut the presumption of common law notice.
- Breach of confidentiality proves to be a costly mistake - November 10, 2023
- Moonlighting during working hours warrants cause for dismissal - October 19, 2023
- Independent contractors have a duty to mitigate loss of fixed-term work - September 15, 2023