Termination provisions can be a useful tool to limit an employee’s presumptive right to common law severance provided that the termination provision maintains the employee’s rights under the Employment Standards Act (ESA). If a termination provision has the effect of reducing the employee’s termination entitlements to less than the minimum ESA standards it will not be enforceable.The Ontario Court of Appeal recently rendered a decision that will prevent employers from relying on a severability clause to save a termination provision that has been found to limit, in part, a minimum standard mandated by the ESA in the recent decision in North v. Metaswitch Corporation, 2017 ONCA 790.
North’s employment was governed by a written employment contract that contained a termination clause. Although the termination provision stated that the Company would pay notice and severance, if applicable, in accordance with the provisions of the ESA, plus its share of the employee benefits during the period required by the Act, it also stated that any payments owing would be based on the “Base Salary.”
The application judge found that the provision in the termination clause allowing for a payment based on “Base Salary,” rather than “Base Salary” plus commissions was an attempt to contract out of an employment standard mandated by the ESA. However, the agreement also contained a severability clause, and the application judge used the severability clause to excise the offending provision from the termination clause, relying on the reasoning in Oudin v. Centre Francophone de Toronto Inc. 2015 ONSC 6494 aff’d 2016 ONCA 514.
The Court of Appeal set aside the decision of the application judge, who found that the severability clause could be used to remove only the illegality in the clause, leaving the remainder of the termination provision intact (the approach used in Oudin). Instead, the Court of Appeal followed the reasoning in Wood v. Fred Deely, 2017 ONCA 158, finding that where a termination clause contracts out of one employment standard, the court must find the entire termination clause to be void.
The take away: If, on assessment, any portion of the termination provision has the effect of contracting out of an employment standard, then the entire termination provision is void and there is nothing to which the severability clause can be applied. The employee will be entitled to termination pay based on common law principles.