This is Part III of #WorkLawWednesday Series “I was fired. What are my options?”, aimed at providing information on the various questions that arise in the context of terminations.
When an employer terminates the employment relationship without cause, the employee is by default entitled to a reasonable period of notice, which courts will calculate based on a number of case-specific factors. (Part I and Part II of this series discussed the right to reasonable notice of termination, or pay in lieu of notice.[1])
In most provinces, however, employment contracts may contain a clause defining how much notice will be owed to the employee, should the employer decide to dismiss them without cause. Generally, such clauses replace the implied term at common law requiring “reasonable notice”.
A termination clause may be quite complicated. Or, it may simply state something like:
The Company is entitled to terminate your employment at any time without cause by providing you with three weeks’ notice.
Contractual termination clauses frequently offer employees significantly less than the “reasonable notice” implied at common law. Nevertheless, they must not go below the minimum amount of notice required by applicable employment standards legislation.
In Nova Scotia, for example, the Labour Standards Code sets out the minimum amount of notice that employers are required to give provincially-regulated employees who are dismissed without cause.[2]
What happens if the termination clause offers the employee less notice than required by the Code?
For instance, under s. 72(1)(c), the Code provides that an employee who has worked for an employer for 5 years or more is owed 4 weeks’ notice of termination. What if such an employee is terminated after 6 years and, as in the example above, their contract provides them with only 3 weeks’ notice?
Here, the employee would be entitled not only to the additional one week of notice that should have been given to bring it up to the statutory minimum. Instead, the Supreme Court of Canada has ruled that an illegal termination clause must be treated as if it never existed.[3] The termination clause is simply void and the employee is owed the “reasonable notice” they would have been owed by default at common law, which could be much higher than the statutory minimum.
Terminated employees are often highly vulnerable, lacking in bargaining power, and often agree to employment contracts drafted by the employer while employees are unaware of their legal rights. As a measure to protect such employees, the Supreme Court insists that any contract clause that violates employment standards minimum notice requirements will be replaced by the common law presumption of “reasonable notice”. In the court’s view, this incentivizes employers to make contracts with their employees that comply with minimum notice requirements.
Recently, the Nova Scotia Court of Appeal confirmed that s. 6 of the Code “renders null and void any contractual provisions that result in an employee receiving less than what they would receive under the minimum standards of the Code.”[4]
Moreover, under s. 71 of the Code, if an employee in Nova Scotia has worked for their employer for more than ten years, they cannot be terminated without just cause (with certain exceptions). If the contract’s termination clause provides otherwise (as in the sample clause given above), it is unenforceable and void because it would deprive the tenured employee of the minimum protection provided to them under the Code.[5]
The requirement to draft a legal termination clause is an onerous one. If any portion of a termination clause can be interpreted so as to entitle the employee to less than is required under applicable employment standards legislation, the entire termination clause is void and the employee is entitled to common law notice.[6] If the clause could even potentially violate minimum standards at any date after hiring (not just on the actual date of termination), it is void and common law standards apply.[7]
Employers are thus strongly encouraged to draft clear termination clauses that are, at the very least, unambiguously compliant with minimum employment standards. Likewise, terminated employees should review their employment contracts with counsel to ensure that any termination clause is legal and enforceable.
For more information please contact Daniel Wilband, Pink Larkin Associate and author of Part III of this series. In our next post, we will consider some further reasons courts may refuse to enforce a termination clause.
#WorkLawWednesday: every second Wednesday Pink Larkin answers general questions about employment and human rights law. This is not intended to be legal advice and should not be relied on as legal advice.
[1] Also see this post for further information on common law “reasonable notice”.
[2] For more details see Part II of this series.
[3] Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986.
[4] Abridean International Inc. v Bidgood, 2017 NSCA 65, at para. 62.
[5] Bidgood, supra note 4, at para. 64.
[6] For further explanation of these principles, see two recent decisions from the Court of Appeal for Ontario: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158; and North v. Metaswitch Networks Corporation, 2017 ONCA 790.
[7] Covenoho v. Pendylum Ltd., 2017 ONCA 284, at para. 7.