| When it comes to limiting and defining your obligations as an employer, there is nothing more valuable than a written employment agreement. And the most important part of that agreement is the termination provision. An enforceable termination provision can potentially reduce termination obligations from 24+ months (based on common law entitlements) to just 8 weeks (based on minimum statutory entitlements). But having an enforceable termination provision is no easy feat. The enforceability of termination provisions is often the focus of litigation. In fact, the Courts have recently held that enforceable termination provisions require “an exacting standard” that many fail to meet, despite best efforts. Over the last five years, the Ontario Court of Appeal has rendered several sweeping decisions that have broadly rendered termination provisions unenforceable. In the recent decision of Dufault v. Ignace (Township), the Court of Appeal held that if a termination provision provides that the employee can be dismissed “at any time”, then the provision may be unenforceable. This is based on the argument that the words “at any time” suggest a potential ability to ignore the Employment Standards Act. This decision comes after the Court of Appeal decision of Waksdale, where the Court held that a “for cause” termination clause renders a termination provision unenforceable. A “for cause” termination clause violates the Employment Standards Act because it allows dismissals with “just cause”, when the Act requires a higher standard of “willful” misconduct. And these decisions came after the Court of Appeal decision of Wood, where the Court held that a termination provision was unenforceable as it stipulated the employee would receive their monetary entitlements. The reference to monetary entitlements was held to suggest that the employee would be denied their benefit continuance entitlements under the Act. Together, these cases mean that a termination provision is likely unenforceable if it has the words “at any time”, “just cause”, or “pay”. In addition to worrying about if the termination provision is enforceable, employers also have to worry about if it is limiting. In the Ontario Court of Appeal decision of Nemeth v. Hatch Ltd., the termination provision did not stipulate the employee would only get their minimum statutory entitlements. As such, the Court held that the provision left open the door for common law entitlements. So what are the takeaways for employers? First, it means gone are the days when employers could rely on a page-long termination provision that talked about terminations at any time because of employee theft. Instead, termination provisions should succinctly and clearly state that the employment relationship can be terminated by either party in accordance with only the minimum statutory entitlements. That’s it. Anything beyond that and there is heightened risk of unenforceability. It also means that employers should look to do strategic dismissals that reflect the risk of an unenforceable termination provision. What are strategic dismissals? The most common strategic dismissal involves approaching the employee(s) pre-dismissal about their interest in a mutual separation package. This way you can negotiate the package before pulling the trigger. This approach works well when you are attempting to select which employees to package out within a group. This approach also works well when you have an employee who has been engaged in antics in hopes of being packaged out. Another form of a strategic dismissal is to provide an employee with a lengthy working notice, but offer as an alternative an immediate dismissal with a smaller separation package. This approach works well when an employee can be trusted during a working notice period. For employers with payrolls that exceed $2.5m per annum, it is important to note that working notice cannot satisfy all termination entitlements. For strategic advice on updating your employment agreements and handling dismissals, please contact our firm. |