'In general, referential clauses… are held to be enforceable in BC': lawyer
The termination clause in a worker’s employment contract that referred to statutory notice and severance provisions under the Canada Labour Code (CLC) — while displacing common law reasonable notice entitlements — has been upheld as enforceable by two levels of British Columbia courts.
“Courts in BC have been clear that the enforceability of termination clauses depends more on clarity around the intentions of the parties and compliance with statutory minimums, rather than requiring specific phrasing in regard to the legislation,” says Brooke Finkelstein, an employment lawyer and investigator at West Coast Workplace Law in Richmond, BC.
The worker held the position of vice-president, maintenance operations at Harbour Air Seaplanes, a floatplane service and charter airline in Richmond since 2017. His compensation included a salary, benefits, and an annual executive bonus.
The worker’s employment was subject to an employment contract with a termination clause that included a provision for without-cause termination. The provision stated that Harbour Air could terminate his employment “at any time without cause so long as it provides appropriate notice and severance in accordance with the requirements of the Canada Labour Code.”
Since Harbour Air was in the transportation industry, it was federally regulated and the CLC was the governing legislation for employment standards.
On March 30, 2020, Harbour Air terminated the worker’s employment due to financial difficulties related to the pandemic. The company paid the worker two weeks' salary in lieu of notice and five days' severance pay, the minimum requirements under the CLC.
Wrongful dismissal suit
The worker launched a wrongful dismissal suit, arguing he was entitled to reasonable notice under common law because the termination clause in his contract was unenforceable. He asserted that the termination clause was ambiguous because it didn’t specifically define his termination entitlement and it allowed Harbour Air to change his employment conditions by not continuing his benefits during the notice period – which was contrary to the CLC.
The worker pointed out that s. 230(1) of the CLC requires an employer to provide an employee dismissed without cause either “at least two weeks” notice in writing or two weeks’ pay in lieu. The former section only set a floor for notice entitlement, leaving ambiguity as to the ceiling – ambiguity that was incorporated into the termination clause.
Harbour Air applied for a summary judgment dismissing the worker’s claim.
The summary trial judge found that the Supreme Court of Canada had established that the presumption of reasonable notice for a dismissed employee “may be rebutted if the employment contract specifies some other notice period, such as a notice period that ‘referentially incorporates’ minimum notice periods set out in employment legislation.’”
In addition, other cases in BC had established that a termination provision incorporating the notice provisions of the province’s Employment Standards Act (ESA) effectively made it part of the contract, said the trial judge.
The trial judge determined that there was no reason why the principles that incorporated the ESA into a termination provision wouldn’t apply to the CLC in the same manner. In addition, s. 230(1) of the CLC only required “at least” two weeks’ notice of termination for written working notice, while requiring “two weeks wages” for pay in in lieu of notice. Harbour Air gave notice under the latter section, which was “extremely clear and unambiguous,” said the trial judge.
Wages in lieu of notice
The trial judge also disagreed with the worker’s claim that the termination clause allowed Harbour Air to change the terms or conditions of his employment contract. While the CLC prohibits the altering of any term or condition of employment during a working notice period, there was no working notice provided in this case where the worker received wages in lieu of notice, the judge said.
The trial judge granted the company’s motion to dismiss the worker’s claim, finding that the termination pay in lieu of notice and severance pay were consistent with the CLC, as incorporated into the worker’s employment contract.
The worker appealed the decision, arguing that the summary trial judge erred in finding that the termination clause wasn’t ambiguous in its reference to the CLC and it excluded benefits as part of the worker’s statutory termination entitlement.
The Court of Appeal noted that an employment agreement can only rebut the entitlement to common law reasonable notice by clearly specifying another period of notice and complying with statutory minimum notice periods.
The appeal court also agreed with the trial judge that in BC, courts have concluded that termination clauses referentially incorporating the ESA with language such as “in accordance with” or “as required under” are sufficiently clear to be enforceable.
Intention to limit notice to statutory requirements
The court found that the termination clause unambiguously incorporated the notice and severance provisions of the CLC. Specifically, the clause provided for “appropriate notice and severance in accordance with the requirements of the Canada Labour Code.” This language clearly indicated the parties’ intent to limit notice entitlements to statutory requirements, said the court.
“The termination clause stated that the employer would provide appropriate notice and severance in accordance with the requirements of the CLC - this type of language is clear and unambiguous, leaving no doubt that the parties intended to limit notice to the statutory minimums provided by the CLC,” says Finkelstein. “This clarity is crucial, because BC courts will enforce clauses that clearly show an intent to displace common law notice as long as they meet statutory requirements.”
The appeal court agreed that the summary trial judge erred in interpreting the termination clause at the time of termination rather than at the time the contract was signed, but it found that this didn’t alter the outcome.
The court also found that the trial judge erred in assessing s. 230(1) of the CLC for ambiguity by treating the working notice and pay in lieu sections separately. It didn’t matter that Harbour Air relied only on the pay in lieu section, as the employment contract should be read as a whole without excluding any particular noncompliant provisions, said the court.
However, the court found that this error also didn’t change the outcome, as the use of the words “at least two weeks” in the written notice provision clearly incorporated a minimum of two weeks’ notice, regardless of whether the employee received more. A termination clause that “clearly evinces an intention to incorporate the notice provisions of the applicable employment standards legislation” is a clear intention to provide some other period of notice to displace the common law entitlement,” the Court of Appeal said.
All statutory requirements incorporated
The court also rejected the worker’s argument that the termination clause was unenforceable because Harbour Air failed to include a bonus and other benefits in his lieu-of-notice pay. It held that the clause didn’t contract out of any statutory obligations because it incorporated the CLC’s requirements – which include all benefits and bonuses that are part of normal compensation. The lack of specific reference to benefits wasn’t an exclusion, but rather the incorporation of the CLC into the termination clause obligated the company to comply with the statutory requirements, the court said in finding that the worker’s terms and conditions of employment weren’t changed by the termination clause.
The Court of Appeal determined that the termination clause was enforceable and compliant with the CLC, affirming the trial judge's dismissal of the worker’s wrongful dismissal claim.
This decision reflects a more pragmatic and contextual approach in BC compared to some other jurisdictions such as Ontario, which require more explicit language that converts statutory minimums into maximum entitlements, according to Finkelstein.
“The Court of Appeal in this case emphasized that general references to minimum standards legislation, such the CLC or ESA, are typically sufficient to displace the presumption of common law notice,” she says. “The court rejected a hyper-technical approach of looking for ambiguity and instead focused on the parties’ intent and the overall clarity of the termination clause.”
Referential clauses enforceable
“In general, referential clauses like the one in this case are held to be enforceable in BC,” adds Finkelstein. “When a clause says, for example, that notice will be provided in accordance with the CLC, it adapts automatically to any legislative changes and avoids the risk of falling below the statutory minimums - which can be a pitfall of being overly specific in a termination clause if the drafter doesn’t take great care to ensure compliance.”
Given this approach by courts in BC, it’s important for employers to ensure they use clear, unambiguous language in termination clauses, particularly since referring to the relevant governing employment standards legislation can effectively limit common law notice entitlements, says Finkelstein.
“As long as the agreement doesn’t attempt to contract out of statutory minimum standards, any claim alleging that a termination clause is unenforceable will ultimately depend on the specific language and structure of the clause at issue,” she says.
See Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222.