Wood v. Deeley: Ontario Court of Appeal Refuses to Enforce Poorly Drafted Termination Clause
By Toronto Employment Lawyer, Karen Zvulony
An employment agreement, which contains a well drafted and statutorily compliant termination clause can be a useful tool for employers to limit their liability in the event of a termination without cause.
The recent Ontario Court of Appeal decision in Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII) reiterated that simply having an employment agreement which contains a termination clause is not enough – the termination clause must be clear and unambiguous and comply with the minimum standards set forth in the Employment Standards Act. Failing which, the employer will not be able to rely on it.
The facts in Wood are fairly straightforward. Ms. Wood worked for Fred Deeley Imports (the “Company”) for roughly 8 years. Wood signed an employment agreement, which contained the following termination clause:
[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks’ notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph…. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.
Wood was terminated without cause. At termination, the Company provided Wood with 13 weeks working notice and 8 weeks’ pay in lieu of notice. The Company refused to pay anything further relying on the above termination provision. By all accounts, Wood would be entitled to considerably more money had her severance entitlements been determined in accordance with the common law, as opposed to the Employment Standards Act or the above termination clause.
Wood brought a motion for summary judgment arguing that the employment agreement and the termination clause contained therein were unenforceable. The Motions Judge dismissed her motion finding that both the employment agreement and the termination clause were enforceable. In the event the Motions Judge erred, the Motions Judge stated that he would have awarded Wood a 9 month notice period (almost double what the Company paid her). Wood appealed to the Court of Appeal.
In its decision, the Court of Appeal disagreed with the Motions Judge and found that the termination clause was unenforceable as it contravened the Employment Standards Act for two reasons. First, the termination clause excluded the Company’s statutory obligation to contribute to Wood’s benefit plans during the notice period. Second, it failed to satisfy the Company’s statutory obligation to pay severance pay. Accordingly, Wood was awarded a reasonable notice period of 9 months.
Notably, the Court found that it made no difference that the Company complied with its obligations under the Employment Standards Act, at the time of termination (i.e. to continue benefits and pay severance). In other words, the Court will not “fix” a clause that fails to comply with the ESA even if the Employer actually complies with the law in practice.
This decision reiterates that a potential breach of the Employment Standards Act will render a termination clause unenforceable. Employers are encouraged to seek legal advice when drafting and negotiating employment agreements.