Decision bucks recent trend of courts striking down termination provisions
In Bertsch v. Datastealth Inc., 2024 ONSC 5593, the Ontario Superior Court of Justice has dismissed an employee’s claim for common law reasonable notice of termination.
The court’s decision followed the employer’s Rule 21 motion, which allows a party to ask the court to dismiss an action based on a discrete point of law, where a decision on that point of law may dispose of some or all of the action. In such a motion, the court assumes all the facts pleaded are true and, in most cases, will not hear any evidence. In this case, there were no relevant facts in dispute and the employer asked the court to decide if the termination provision in the employee’s contract was enforceable.
The court held that the termination provision, which excluded the employee’s entitlement to common law reasonable notice of termination and limited his entitlement to the minimums under the Ontario Employment Standards Act, 2000 (ESA), was clear and enforceable. Therefore, the court dismissed the employee’s claim.
The employment agreement stated the employee’s entitlements upon termination would be limited to the minimum entitlements under the ESA and he would have no further entitlement to notice under the common law.
The employee was employed for about eight-and-a-half months when he was dismissed without cause. The employer provided him four weeks of pay in lieu of notice, which exceeded his ESA entitlement of one week of notice.
The employee argued the termination provision was unenforceable and claimed 12 months’ pay in lieu of notice, equal to $300,000.
Termination provision
The termination provision in question stated:
“If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the [ESA] and its Regulations… including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.
You understand and agree that compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment or pay in lieu thereof. You further understand and agree that this provision shall apply to you throughout your employment with the company, regardless of its duration or any changes to your position or compensation.”
The employee argued that the termination provision was void and unenforceable because it was ambiguous and failed to properly reference the employer’s obligation to pay termination and severance pay under the ESA and its Termination and Severance of Employment regulation, which stipulates that if the employee’s conduct amounts to cause but did not constitute “wilful misconduct, disobedience or wilful neglect of duty,” the employee’s entitlement to statutory notice was not eliminated. This argument is frequently made by employees in wrongful dismissal claims to challenge the enforceability of provisions that refer to termination for “cause.”
The court held this was an appropriate case for a Rule 21 motion and that the court’s interpretation of the termination provision would be efficient, useful, and just.
Enforceable termination provision language
The court also held that, for an employment termination provision to be valid, it must not contravene the ESA and its regulations and properly exclude common law notice. The court found the termination provision in this case was both clear and enforceable and did not result in any breach of the ESA or the Regulation.
“There is no reasonable alternative interpretation of the relevant clauses here that might result in an illegal outcome - i.e., there is no reasonable interpretation which would be contrary to the minimum requirements of the ESA and regulations,” said the court.
Finally, the court emphasized that, in the absence of ambiguity in the language of the termination provision, the presumptive power imbalance between the employer and employee would not change the outcome.
Datastealth is an important (and hopeful) reminder for employers that a carefully drafted termination provision can, in fact, control and significantly reduce their financial liability related to the termination of an employee’s employment. While there are many court decisions that have struck down termination provisions, this decision provides employers a useful example of enforceable termination language. It will therefore serve as a helpful reference point for employers in both drafting and defending an enforceable termination provision.
The decision also provides employers a strong basis to refute the claim frequently made by employees that the presence of “for cause” termination language without expressly referring to the exemption related to “wilful misconduct, disobedience or wilful neglect of duty” in the Regulation, will automatically render a termination provision unenforceable.
Lastly, this decision makes it clear that a Rule 21 motion can, in a suitable case, be an effective and efficient manner in which to determine the validity of a termination provision in an employment contract.
As always, employers are encouraged to review their employment contracts regularly to ensure they will afford them the (often significant) financial advantage that results from having a clear and enforceable termination provision.
Rhonda B. Levy is a Knowledge Management Counsel for Littler in Canada, based in Toronto. Monty Verlint is a Partner practicing labour and employment law at Littler in Toronto. Natalie Nicholson is an Associate practicing labour and employment law at Littler in Toronto.
