Resource provided by Keyser Mason Ball LLP
Megan Burkett highlights the importance of regularly updating company policies and contracts.
Employment law is constantly changing. With the latest court decisions, new legislation and modifications to Ministry practices, it can be difficult to keep up. With this ever changing landscape, it is important to regularly update company policies and contracts.
Many companies have been using the same employment contracts year after year. If that is the practice of your organization, then it is time to take a second look at your company’s employment contracts. Over the past few years, a number of cases have been released by the courts in which termination clauses have been struck down for different reasons.
Termination clauses are relied upon by companies to limit common law exposure when ending the employment relationship. A well-drafted termination clause that limits this exposure can potentially save a company up to thousands of dollars or months of termination pay. However, when a termination clause does not comply with the requirements of the Employment Standards Act[i], the court can determine that the termination clause is void and unenforceable.
1. Failure to Continue Benefits
Where a termination clause makes no reference to the continuation of group insurance benefits, the court can strike down the entire clause. This was the finding of the court in the decision of Stevens v. Sifton Properties Ltd.[ii] Under the Employment Standards Act, group insurance benefits are required to be continued for the duration of an employee’s statutory notice of termination or pay in lieu of notice period, which is 1 to 8 weeks, depending on length of service.
2. Future Violations
A potential violation of the Employment Standards Act can be enough for a termination clause to be struck down as illegal. In Wright v. The Young and Rubicam Group of Companies[iii], the termination clause was in violation of the Employment Standards Act at certain points in time. Even though the payments to the employee complied with the legislation at the time of termination, at a later point in time there could have been a violation of the Employment Standards Act. As such, the court struck down the clause.
3. No Reference to Severance PayWhen a termination clause does not mention severance pay, the courts in Ontario have also determined that the clause is unenforceable, such as in the decision of Slepenkova v. Ivanov[iv]. Even though the employer was not a severance pay employer at the time of the termination, a future violation was enough for the termination clause to be struck down.
4. Base Salary Only
Another issue is when the termination clause only refers to termination payments on base salary in situations where the employee regularly earns other types of compensation such as commission, non-discretionary bonus or profit-sharing payments. In Dimson v. KTI Kanatek Technologies Inc.[v], the company averaged the employee’s base salary and commission for the 12 week period prior to the termination, but not the bonus. In this case, the court found in favour of the company since the termination clause referred to the continuation of all payments or entitlements. The employee was not entitled to the bonus payment since those payments had not been made in the 12 week period prior to termination. However, this case serves as an important reminder against using the term “base salary” for a termination clause for an employee with multiple types of compensation.
Given the above cases, if your company has not reviewed its employment contracts in a number of years, you should consider taking another look at the termination clause and you may wish to consult a lawyer to review the clause. A properly drafted termination clause can limit the company’s exposure upon termination.
[i] Employment Standards Act, 2000, as amended, S.O. 2000, Ch. 41.[ii] Stevens v. Sifton Properties Ltd.  O.J. No. 6244 (S.C.J.).
[iii] Wright v. The Young and Rubicam Group of Companies  ONSC 4720.[iv] Slepenkova v. Ivanov,  60 C.C.E.l. (3d) 303, aff’d 2009 ONCA 526.
[v] Dimson v. KTI Kanatek Technologies Inc.,  ONSC 6556.
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.
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