A thoughtful and considered employment contract is vital for any business and its employees. Providing clarity for both parties on any potentially contentious issues in a contract—such as a termination clause—is of particular importance, especially if the employer wants to rely on those clauses later.
When drafting termination clauses, however, employers must also consider the contract’s jurisdictional context to ensure a robust agreement. In the case of British Columbia (B.C.) and Ontario, the courts have expressed differing stances on the enforceability of termination clauses, most notably where they significantly limit an employee’s potential notice or severance entitlements.
Recent decisions from both B.C. and Ontario illustrate the considerable differences in the approach toward such clauses taken by each province’s respective courts.
Ontario – Any Error Is Too Many
Typically, Ontario courts have taken a much more disapproving view toward termination clauses in employment contracts, deeming them unenforceable on a regular basis for a wide variety of reasons. Since the seminal 2020 Waksdale decision, the basis for invalidating such clauses has only expanded. Ontario courts have now made it clear that drafting problems with other provisions in an employment contract may serve to invalidate an otherwise enforceable termination clause.
The recent case of Henderson v. Slavkin et al., 2022 ONSC 2964, continues this trend. In this decision, the court found that a contract’s overly broad confidentiality and conflict of interest clauses—which only vaguely connected to the contract’s termination provisions—essentially nullified the termination without cause clause.
The court found that the confidentiality and conflict of interest clauses were invalid as they were overly broad and represented an attempt to contract out of certain legislative requirements. Because these clauses contemplated the possibility of termination for cause, the court concluded there was a sufficient connection to justify invalidating the without cause provision as well.
B.C. – As It’s Written
By contrast, B.C. courts have interpreted termination clauses in employment contracts in a more employer-friendly manner, even where they involve a clause that limits the employee to the minimum notice or pay in lieu of notice as set out in B.C.’s Employment Standards Act (the “ESA”).
The recent case of Shultz v Prococious Technology Inc., dba Cleardent, 2022 BCSC 1420, illustrates B.C.’s decidedly different approach. In this decision, the court found an ESA-minimum clause sufficient when terminating without cause. In so doing, the court did not engage in the exhaustive linguistic analysis that we have come to expect in similar Ontario decisions. The court simply read the clause based on its plain meaning and enforced it, limiting the employee to ESA minimum entitlements.
It is also worth noting that the employee in this case worked for the company for nearly 13 years, across 2 different employment periods. However, the court found her seniority to be only 2.5 years (her later employment period) and determined that this period would inform the proper notice she was owed. The court found that there had been a clear break in service when she had resigned and returned 14 months later, and thereby dismissed the employee’s claim that her service should be deemed continuous.
The key to this finding was that her newest employment contract was drafted to suggest she was considered a new employee when she rejoined the company—in other words, thoughtful drafting of the contract here saved the employer an additional 6 weeks of termination pay.
Ontario employers will need to draft their employment contracts with extreme care to have any chance of having enforceable termination clauses. This can be a daunting process but can be accomplished with careful, strategic thought and planning in consultation with proper legal counsel.
The good news for employers in B.C. is that its courts will generally interpret termination clauses far more generously than those in Ontario. That being said, B.C. employers must not allow themselves to be complacent and assume their contracts are enforceable. There are still many simple mistakes that could doom a termination clause, and these mistakes are surprisingly common.
Termination clauses in B.C. are low-hanging (and valuable!) fruit—this makes it all the more painful when employers leave that fruit on the tree.
As illustrated in the cases summarized above, the key takeaways for employers in either province are:
While this article offers a high-level understanding of some differences between employment contracts in B.C. and Ontario is shouldn’t be considered legal advice. For more information or advice about employment contracts in either jurisdiction, please contact Matthew E. McCarthy of Boughton Law’s employment group.