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Severance limiting clauses CAN work especially in employment agreements



A recent Ontario Superior Court decision reinforces some basic principles previously discussed on this Blog (and unfortunately often missed or forgotten by employers). In Asgari v 975866 Ontario Ltd, a motion for summary judgment was decided in the Plaintiff’s favour. One issue was whether a clause, purporting to limit the Plaintiff’s pay in lieu of notice entitlements to the statutory minimum, was enforceable.

Unfortunately for the Defendant employer, the clause was contained in an employee handbook, not in the Plaintiff’s offer of employment. Making matters worse, the employee handbook contained the following fatal language: “the Employee Handbook is not a contact of employment”. The Court stated that “[a]s a result, it is confusing if not contradictory about whether the plaintiff waived his right to seek common law damages beyond that available pursuant to the Employment Standards Act”.

This case is a reminder that:

  • Employers can indeed require employees to execute employment agreements that limit them to their minimum notice entitlements under the Alberta Employment Standards Code. This clause provides certainty for termination costs (hopefully avoiding expensive litigation);
  • It is important for an employer to have a properly drafted severance clause. These types of clauses are very technical and need to be drafted with precision, to avoid unintentionally violating the minimum standards of the Code and being declared invalid (usually resulting in expensive litigation); and
  • Severance clauses should ideally be contained in an executed employment agreement signed by the employee prior to starting employment. In our experience, placing such clauses in other documents, such as employee handbooks, can create ambiguity and make it more difficult to convince a court that the employee acknowledged and accepted the severance limiting clause.

Ben Aberant and Shana Wolch, Alberta Employer Advisor

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Employer Advisor, McCarthy Tétrault LLP

Employment and labour lawyers at McCarthy Tétrault LLP
McCarthy Tétrault through their Employer Advisor blogs offers their perspectives on the latest legal developments applicable to the workplace. It provides their insights on legislative and regulatory developments, as well as new case law, while providing practical tips for employers and their human resources professionals when managing the workforce. McCarthy Tétrault is a Canadian law firm that delivers integrated business law, litigation services, tax law, real property law, labour and employment law nationally and globally. Several of their blog posts will be republished with permission on First Reference Talks. Read more
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