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Termination Clauses in Employment Agreements

The enforceability of termination clauses in employment agreements in Ontario is highly litigated and discussed topic, having significant implications for both employers and employees. The difference between an enforceable and unenforceable termination clause in an employment contract can mean the difference between 10’s of thousands, and sometimes 100’s of thousands of dollars in severance obligations. Of course, if you are an employer, it is imperative to draft an enforceable termination clause to limit a terminated employees entitlements to severance pay. Conversely, employees seek employment clauses which do not restrict their termination entitlements or those where termination clauses are not drafted properly so as to be unenforceable.

What an enforceable termination clause does is limit an employees entitlement to those expressly laid out in the Employment Standards Act, thereby ousting the rights to enhanced common law notice or pay in lieu thereof. There is a presumption of entitlement to common law notice absent an enforceable termination clause. So what clause is enforceable? The case law is checkered on this point.

In a recent case called Nemeth v. Hatch Ltd., 2018 ONCA 7, the Ontario Court of Appeal clarified that termination clauses do not need to contain specific language to oust the common law, as long as the “intention to displace an employee’s common law notice rights can be readily gleaned from the language agreed to by the parties.” The Court also concluded that the termination provision’s silence on severance pay did not make it void and unenforceable.

Where a termination provision is silent with respect to severance pay, this does not denote an intention to contract out of the ESA, and the statutory minimum standards remain in place. The Court referred to the comments in Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, wherein Justice Laskin noted that the absence of language in a termination clause with respect to continued contributions to a benefit plan did not indicate an intention to exclude the obligation.

For more questions on termination clauses in Ontario or general employment law issues, contact Goldstein Law Firm today for a free consultation.

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