The Court of Appeal has provided some much needed clarification on the ever changing subject of enforceability of employment contracts.
In Nemeth v. Hatch Ltd., 2018 ONCA 7 (“Nemeth”), the plaintiff (appellant) was employed with the defendant for about 19 years. He was terminated and was given eight weeks’ notice of termination, 19.42 weeks’ salary as severance pay, and continued benefits and pension during the eight-week notice period. This was consistent with the employee’s entitlements under the Employment Standards Act, 2000 (“ESA”) as well as with the defendant’s interpretation of the termination clause in the employment contract. The termination clause stated:
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.
The trial judge dismissed the plaintiff’s action and on appeal the plaintiff advanced three arguments.
First, the plaintiff argued that he maintained his right to a common law notice period because the termination clause did not expressly exclude that entitlement. The Court of Appeal disagreed. It found that even though the termination clause did not expressly say that the plaintiff was not entitled to the common law notice period, the language of the clause was clear that the parties intended to displace the employee’s common law notice rights.
Second, the plaintiff argued that the termination clause was void because it attempted to contract out of his right to severance pay. Specifically, the plaintiff objected to the clause because it did not include express language referencing his right to severance pay. Again, the Court of Appeal disagreed with the plaintiff’s position and it confirmed that silence will not be interpreted as an attempt to contract out of an ESA entitlement. In doing so, the Court referred to its earlier jurisprudence in Roden v. Toronto Humane Society, 2005 CanLII 33578, where the Court made a similar decision on a clause which was silent on the continuation of benefits during the notice period.
The clause in Nemeth can be contrasted with cases such as Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (“Wood”) where the plaintiff successfully argued that the termination clause was unenforceable because it attempted to contract out of the obligation to continue benefit contributions during the notice period. In Wood, the termination clause included the following statements:
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.
These statements which purported to limit the plaintiff’s entitlement upon termination and caused problems for the employer in Wood were not present in the termination clause in Nemeth.
The plaintiff’s third and final argument in Nemeth was that he was entitled to 19 weeks’ notice under the employment contract. It seems that this argument was not fully addressed in the reasons below. The Court of Appeal considered the wording of the clause:
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.
It concluded that two interpretations were available – one would limit the plaintiff’s entitlement to the minimum prescribed by the ESA, and the other would not. Instead, it would give the plaintiff one week per year of service for a total of 19 weeks’ notice. The Court concluded that the proper interpretation was the one which would provide the plaintiff with 19 weeks’ notice.
There are a few key take away points from Nemeth. A termination clause which does not expressly refer to entitlements (such as severance pay) will not be read by the courts as an attempt to contact out of those entitlements. On the other hand, clauses which expressly attempt to contract out of ESA entitlements will be problematic.
Also, the Court provided a helpful reminder that when faced with two reasonable interpretations of a termination clause, the Court will prefer the interpretation which provides the employee with a greater benefit.