By Norm Keith, Richelle Pollard, and Joseph Cammalleri
A new case has upheld a termination clause in an employment contract that “bucks the recent judicial trend.” While most termination clauses in employment contracts have been invalidated, the court in Bertsch v. Datastealth[2], has upheld a termination clause limiting entitlements upon termination of employment to the statutory minimums provided for under the Ontario Employment Standards Act, 2000 (“ESA”).
In reaching the decision, the Court relied upon Rule 21 of the Ontario Rules of Civil Procedure (the “Rules”), which permits a party to ask the Court to decide a question of law before trial.
Facts
In Bertsch, the Plaintiff’s employment was terminated on a without cause basis after working for the Company for approximately 8.5 months. In accordance with the termination clause provided for in the Plaintiff’s employment agreement, he was paid only his statutory entitlements pursuant to the ESA.
In the claim, the Plaintiff alleged, amongst other things, that the termination clause in the employment contract was ambiguous and therefore unenforceable on the basis that it failed to properly reference the statutory exemptions from compensation as required by the ESA. More specifically, the Plaintiff alleged that the termination clause was void because it provided that the employment relationship could be terminated for cause, without payment, irrespective of whether there was “wilful conduct, disobedience or wilful neglect” as set out in the ESA.
The Company brought a motion under Rule 21.01(1) of the Rules asking the Court to decide the issue of the enforceability of the termination clause and strike out the claim in the event that the termination clause was upheld. In response, the Plaintiff argued that Rule 21.01 should not be used because the termination clause needed to be interpreted considering all of the circumstances that surrounded the formation of the employment agreement.
The decision
In reaching his decision to uphold the termination clause, Justice Stevenson found that there was no reason why a Rule 21 motion could not be used to decide a claim for breach of contract where the circumstances in which the contract was signed are not in dispute.
With respect to the language contained in the termination clause, Justice Stevenson noted that while the terms were not simple, they were nevertheless clear and unambiguous. In distinguishing the termination clause from those which were held to be unenforceable in previous cases, most notably the Court of Appeal’s decision in Waksdale v. Swegon North America Inc.[3] and more recently in Livshin v. The Clinic Network Canada Inc.[4], Justice Stevenson found that the “with cause” language was clear, unambiguous, and did not contravene the ESA. Justice Stevenson also concluded that the presumed imbalance of power that existed between the Plaintiff and the Company at the time the employment agreement was signed did not change the outcome where the proper meaning of the termination clause was clear.
As a result of the Court’s finding, the Plaintiff’s claim was struck out without leave to amend.
Takeaways
In a post Waksdale landscape, it has become very difficult for employers to enforce termination clauses which seek to limit entitlements upon termination of employment to statutory minimums. The Court’s decision in Bertsch is a refreshing reminder that termination clauses which are carefully drafted, clearly communicated and clear in scope can be upheld and can be useful tools to eliminate claims for common law reasonable notice. The Court’s use of the mechanisms provided for under Rule 21 provides a useful avenue for having these issues decided on a preliminary (and presumptively quicker) basis without the need for a full trial and/or motion for summary judgment.
This decision may also indicate a change in the trend across Canada to apply a more common-sense, employer-friendly, approach to the interpretation of termination clauses. For example, recently in Egan v. Harbor Air Seaplanes LLP,[5] the British Columbia Court of Appeal also concluded that termination clauses incorporating reference to employment standards legislation may be enough to deny an employee common law reasonable notice on termination.
For further information on the decision or to discuss your approach to the use and drafting of termination clauses, please reach out to any member of KPMG Law’s Employment and Labour Law Group.
Norm Keith is a partner at KPMG Law LLP. He can be reached at [email protected] or +1 416 476 2002. Richelle Pollard is a partner at KPMG Law LLP. Richelle can be reached at [email protected] or +1 416 476 2868. Joseph Cammalleri is an associate at KPMG Law LLP. He can be reached at [email protected] or +1 416 777 8951
[2] 2024 ONSC 5593.
[3] 2020 ONCA 391.
[4] 2021 ONSC 6796.
[5] 2024 BCCA 222.
