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Employer unsuccessful in voiding unfavourable termination clause

terminationA recent decision from the Ontario Court of Appeal, Roberts v. Zoomermedia Limited, dealt with the unusual situation of a defendant employer arguing that its own contractual termination provision was unenforceable and thus the plaintiff employee was entitled to common law reasonable notice. Employees frequently challenge the enforceability of a termination provision to seek common law notice, however, it is rare that an employer would do the same.

Mr. Roberts was employed by Zoomermedia pursuant to a fixed–term employment agreement (the “Agreement”). The Agreement provided that upon its expiry, Mr. Roberts would receive a 2–year lump sum severance payment and a 6–month paid sabbatical.

The Agreement also contained a termination provision, which reads in part:

Where the Executive’s employment under this Agreement has been terminated under section 8.1(c), the Executive shall continue to receive the Benefits described in paragraph 1 of Schedule A, other than Long Term and Short Term Disability until October 31, 2011 or until the expiry of two (2) years after the effective date of termination, whichever is first, or such later date as may be required by the relevant legislation. Notwithstanding the foregoing, the Executive shall notify the Company if similar benefits are sourced from an alternative provider during that period, at which time the Company’s obligation to continue the Benefits shall cease. On termination for any other reason, all Benefits shall cease at the effective date of termination or such later date as may be required by the relevant legislation. (emphasis added)

Zoomermedia argued that that the termination provision was unenforceable because it contravened section 61(1) of the Employment Standards Act (ESA) by expressly excluding entitlement to short–term and long–term disability benefits during the statutory notice period. Therefore, the entire termination provision was unenforceable and Mr. Roberts was not entitled to receive the contractual severance payment. Instead, his entitlements must be calculated on the basis of the common law.

The Court of Appeal summarily rejected this argument and upheld Mr. Roberts’ entitlement to receive the contractual 2–year severance payment. In so doing, Miller J.A. concluded:

Effectively, the appellant argues that because it did not agree to provide the respondent with all of his statutory entitlementsent—itlements that were conditional on an early termination, an event which never occurred—the respondent must therefore forfeit his contractual entitlements: contractual entitlements that are far greater than what either the ESA or the common law would have provided. This would be a perverse application of a statute that is intended to protect the interests of employees, and I would reject it.

This termination provision is, on a plain reading, in contravention of the ESA. Employers in Ontario are required, in the event of a without cause dismissal, to maintain all employee benefits (including disability benefits) for the duration of the applicable statutory notice period. The termination provision in question expressly excluded the continuation of both short-and long-term disability benefits.

In the event that Mr. Roberts, rather than Zoomermedia, had challenged the enforceability of the same provision, it is quite likely that the Court would have found the clause to be void (see for instance, the Court of Appeal’s ruling in the recent case of Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158). Thus, we are left with something of a double-standard with respect to the enforceability of termination clauses. Namely, Zoomermedia establishes the principle that the courts will refuse to grant employers the benefit of an unlawful termination clause (that it drafted) being rendered unenforceable.

The Court of Appeal, however, was quite explicit as to why this distinction is appropriate. The ESA is an employee protection statute and to read it in such a way that takes away employee rights (as suggested by Zoomermedia) would result in a “perverse application of a statute that is intended to protect the interests of employees.”

Zoomermedia provides an important reminder for employers to draft clear and enforceable termination clauses from the outset. Employers will be unsuccessful in requesting that the courts void unfavourable termination clauses at a later date, in a bid to reduce potential liability.

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Vey Willetts LLP

Employment and labour lawyers at Vey Willetts
Vey Willetts LLP is an Ottawa-based workplace law firm, serving individuals and employers across Eastern Ontario. They recognize that operating a business is complex and maintaining an efficient and legally-compliant workplace is a continuous challenge. The firm helps simplify legal workplace obligations so that employers can focus on what matters: their business. Learn more about Vey Willetts LLP by contacting Andrew Vey, or Paul Willetts or by visiting the firm’s website. Read more.
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