Ontario Court of Appeals Hands Down Update on Termination Clauses

A termination clause seems like a simple thing – a passage used in an employment contract that is intended to limit the rights of the employee to notice and/or termination pay in lieu of notice. It works in such a way as to provide a formula for compensation as the result of notice that is less than the common law dictates, but is also equal to or slightly more than the law minimally requires. And while this does seem simple and is, in theory, much like anything else that has to do with the law, termination clauses are open to interpretation, and the Ontario government has given businesses a lot to consider with some of their recent court decisions. And with 2018 underway, Ontario business now have to consider Nemeth v Hatch Ltd.

The Case

Joseph Nemeth was an employee of Hatch Ltd., for over 19 years. Upon his termination, Nemeth was provided with eight weeks’ notice, approximately 19 weeks’ worth of salary as severance, and continued benefits, including pension, during the eight-week notice period. According to Nemeth’s employment agreement, the termination clause read:

“The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.”

Nemeth believed that he was entitled to 19 weeks’ notice as per the termination provisions found in his employment agreement.

The Decision

It was found by the Courts that there is no need for specific language to be used when contracting out of common law notice requirements if the “intention to displace an employee’s common law notice rights can be readily gleaned from the language agreed to by the parties.”

Simply put, this is a case of letter of the law versus the spirit of the law, and in yet another decision by the Ontario courts, it was ruled that spirit of the law trumps. However, the courts have also successfully cast doubt and uncertainty among Ontario businesses that use termination clauses to protect their business. So where does that leave you?

Working With a Professional

With the landscape of Ontario employment law in constant flux, the need to ensure employment agreements and contracts are sound has never been greater. This is why it is prudent to partner with a firm that understands this changing landscape and can help protect your business with each new hire. After all, the point of growing a workforce is to grow the business, not ultimately set it back when that employee’s tenure has ended.

Growing business is not without its risks and challenges; however, protecting your business and staffing it with the right workforce doesn’t have to be. Contact Employment Professionals Canada and discover how they can help propel your business forward.