Prudent employers establish employment contracts at the beginning of the employment relationship.
The most important term in any employment contract is the termination clause. Everything else changes: wages, job description, vacation entitlement, and even the benefit plan details.
Failing to get proper legal advice with respect to that contract, however, can be extremely expensive. Jack was hired by an automotive service centre under a contract that said he was hired for a five-year term starting September of 2012.
It also stated that “the Employee and Employer may terminate the Employee’s employment at any time in accordance with the terms and conditions with this Agreement.”
Those terms included termination without payment for just cause or resignation and went on to state, “Employment may be terminated at any time by the Employer and any amount paid to the Employee shall be in accordance of the Employment Standards Act of Ontario.
Jack was terminated without cause 23 months into the 60 month contract. The employer took the position that it owed Jack only the two weeks’ minimum termination pay required by the Employment Standards Act (ESA)
when you have worked more than one year but less than three. Jack took the position that the last provision I quoted above was ambiguous and meaningless and he was entitled to the rest of the five years’ pay.
The problem was that the clause at issue did not say “any amount paid to the Employee shall be limited
to the ESA
”. It said it would be in accordance
with that Act.
It effectively allowed for the possibility of payment of a lot more than the Employment Standards Act
and only noted that those payments would be in accordance with the Act.
itself says that it only sets out minimums and does not affect and greater right or benefit and employee may have. An employer who seeks in a contract to limit an employee to the ESA
minimums must make it crystal clear.
There is a rule of contract interpretation that any ambiguity in a contract will be held against the party who drafted it, in this case, Jack’s employer. The early termination provision was held to be a nullity…. Jack had a five-year contract.
The employer then argued that if that was the case, Jack still had an obligation to try to find new employment and they should get credit for any monies he earned from that new employment during the remainder of the five-year term.
The Court of Appeal of Ontario rejected that argument.
The Court found that it would be unfair to allow an employer to have a contract that appeared to create certainty by providing either a formula for what would happen on termination or a fixed period of employment and then later claim that the employee had to show reasonable efforts to look for work and that the employer should get a credit for the fruits of that effort if work is found. If an employer wants to have a provision in their contract that incorporates such obligations, it is up to them to write it in. The courts will not do their work for them by pretending it is there when it is not.
The Court decided that if all the contract says is that the employee will be employed for five years or that the employee, on termination, will get four weeks per year of service, that is what they get. Jack was awarded lost wages and the value of the benefits over the last 37 months of the five-year term he was not allowed to work as well as costs, over $200,000 in total.
As self serving as it sounds, it is far better to spend some money on an employment lawyer at the beginning of the relationship than to have to pay out these damages at the end.
All of Jack’s employers’ problems could have been averted if, instead of using the term “in accordance”, they had used “limited to”. Two words. They could have saved $100,000 each.
Ed Canning practices labour and employment law with Ross & McBride LLP, in Hamilton, representing both employers and employees. You can email him at firstname.lastname@example.org