• First Reference
  • About us
  • Contact us
  • Blog Signup 📨

First Reference Talks

Discussions on Human Resources, Employment Law, Payroll and Internal Controls

  • Home
  • About
  • Archives
  • Resources
  • Buy Policies
You are here: Home / Administration / Generous termination clauses: Think twice before making promises #learnthelatest

By Stringer LLP | 3 Minutes Read April 28, 2017

Generous termination clauses: Think twice before making promises #learnthelatest

termination clausesMany employers include termination clauses in employment contracts to limit their liability when dismissing employees. When employers draft generous termination provisions providing for more than statutory minimums, they must follow through on that generosity when terminating employees. Failing to do so could leave employers exposed to full liability under the common law.

The case

The employee in Holmes v Hatch Ltd. had been employed for almost 17 years as Project Manager and Senior Water Resources Engineer before he was terminated without cause. The termination provision in his employment contract was as follows:

In the event that we must terminate your employment for reasons other than cause, you will receive a termination package which takes into account your years of service, position and age. As a minimum the amount of combined notice and severance you will receive will equal 4 weeks plus one week for each completed year of service, or such greater amount as may be required by statute at the time of termination.

The employer noted that it had paid the employee his salary for approximately 25.5 weeks after his termination, and had continued his employment benefits for 8 weeks. It argued that this was more than the minimum prescribed by the second sentence of the termination clause, and that the employee had therefore received all he was entitled to.

Normally, when a party breaches a contract, it is required to perform no more than the minimum performance guaranteed under the contract. However, the clause in question promised the employee an appropriate termination package that complies with the Employment Standards Act (ESA) minimums and is based on a consideration of the listed factors. It treated consideration of the factors to arrive at a suitable termination package as an additional requirement, subject to the ESA minimums.

The court found that the termination provision explicitly incorporated several common law Bardal factors: years of service, position, and age. A proper interpretation of the provision required that these words be given meaning, and as such the employer was obligated to consider these factors when deciding on the content of the employee’s termination package.

The court found that the employer had not provided sufficient credible evidence to prove that it had indeed considered these factors when making its decision. As such, the court found that the employer had breached the employment contract, and thus could not rely on it to limit its liability. The court awarded 18 months common law notice to the employee, minus any notice payments already made by the employer and subject to mitigation.

The takeaway

Employers may choose to provide for more than the statutory minimums when drafting termination clauses for a variety of reasons. However, they should be aware that failing to provide compensation in accordance with these clauses could leave them exposed to liability under the common law, which can be significant. Employers should consult with employment law counsel when drafting termination clauses to ensure that they are promising what they intend to promise, and not more.

To learn more about how to draft enforceable termination clauses that suit your organization’s needs, register to Learn the Latest® at the Ontario Employment Law Conference.


  • About
  • Latest Posts
Follow me
Stringer LLP
Employment and Labour lawyers at Stringer LLP
Stringer LLP is a leader in Canadian HR law. For over 50 years, they have taken a client-centered approach to responsive service, representing employers with labour relations and employment problems. Their firm’s practice covers a broad spectrum of HR law, including employment law, occupational health & safety, labour relations and arbitration, human rights, workers’ compensation, pay equity and corporate immigration, as well as issues under the Accessibility for Ontarians with Disabilities Act. They also provide training, seminars and conferences on the above topics.
Follow me
Latest posts by Stringer LLP (see all)
  • Ontario legislature passes Bill 186 – Employment Standards Amendment Act (Infectious Disease Emergencies), 2020 – Job protection for workers due to COVID-19 - March 24, 2020
  • A wrongful dismissal time warp – When is two years really six? - December 23, 2019
  • Embracing the #MeToo movement - October 29, 2019

Article by Stringer LLP / Administration, Employee Relations, Employment Standards, Payroll, Union Relations / 18th Ontario Employment Law Conference, 2017 Ontario Employment Law Conference, Bardal Factors, dismissing employees, employee termination, employment and labour law, employment law, Holmes v Hatch Ltd., HR conference, HRlaw conference, Learn the latest, Stringer LLP, termination clauses

Share with a friend or colleague

Get the Latest Posts in your Inbox for Free!

Electronic monitoring

About Stringer LLP

Stringer LLP is a leader in Canadian HR law. For over 50 years, they have taken a client-centered approach to responsive service, representing employers with labour relations and employment problems. Their firm’s practice covers a broad spectrum of HR law, including employment law, occupational health & safety, labour relations and arbitration, human rights, workers’ compensation, pay equity and corporate immigration, as well as issues under the Accessibility for Ontarians with Disabilities Act. They also provide training, seminars and conferences on the above topics.

Reader Interactions

Trackbacks

  1. Think twice before making generous termination clauses – Camberwell House says:
    April 29, 2017 at 1:14 pm

    […] LLP (in their First Reference post “Generous termination clauses: Think twice before making promises“) note the dangers in contract language ambiguity: it is a weak spot which will invite […]

Footer

About us

Established in 1995, First Reference is the leading publisher of up to date, practical and authoritative HR compliance and policy databases that are essential to ensure organizations meet their due diligence and duty of care requirements.

First Reference Talks

  • Home
  • About
  • Archives
  • Resources
  • Buy Policies

Main Menu

  • About First Reference
  • Resources
  • Contact us
  • 1 800 750 8175

Stay Connected

  • Facebook
  • LinkedIn
  • Twitter
  • YouTube

We welcome your comments on our blog articles. However, we do not respond to specific legal questions in this space.
We do not provide any form of legal advice or legal opinion. Please consult a lawyer in your jurisdiction or try one of our products.


Copyright © 2009 - 2023 · First Reference Inc. · All Rights Reserved
Legal and Copyright Notices · Publisher's Disclaimer · Privacy Policy · Accessibility Policy