Court of Appeal Decision of the Week

“All Inclusive” Language in Termination Clause = No Vacation from Employment Standards Act, 2000, SO 2000, c 41

Case: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII)

Keywords: Termination Clause; Employment Standards Act, 2000, SO 2000, c 41; Reasonable Notice

Synopsis:

Fred Deeley Imports Ltd. (the Respondent) is exclusive distributor for Harley-Davidson motorcycles, parts, apparel and accessories. At the end of April 2015, Harley-Davidson Canada enters an agreement with Deeley to purchase all of its assets. As a result of the buyout, Deeley informs its employees, including the Appellant, that their employment is terminated effective August 4, 2015. As of the date of termination, the Appellant worked as “Sales & Event Planner” for eight years and four months. She is 48 years old at the time her employment ends; her annual compensation, including benefits, is approximately $100K.

The Appellant signed an employment agreement the day after she started working for Deeley. A termination clause in that agreement provides as follows:

[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks’ notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph, except for any amounts which may be due and remaining unpaid at the time of termination of your employment. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000. [Emphasis added.]

The Appellant receives a total of 21 weeks’ salary (13 weeks’ working notice plus a lump sum payment for 8 weeks) and an additional 8.3 weeks’ severance pay. Deeley also makes contributions to the Appellant’s health and dental plan throughout the 13 weeks and offers, in exchange for signing a release, to make a RRSP contribution.

Notwithstanding Deeley’s post-termination conduct, the Appellant brings an action arguing the termination clause is unenforceable because the wording of the clause expressly excludes statutory obligations to contribute to her benefit plan during the notice period in violation of ss. 60 and 61 of the Employment Standards Act, 2000, SO 2000, c 41 (which renders the clause void under s. 5(1) of that Act).

The Motion Judge dismisses the Appellant’s motion (finds the employment agreement/termination clause enforceable) but also holds that, should this finding be incorrect, the Appellant would be entitled to 39 weeks or 9 months reasonable notice.

On appeal, the Appellant raises the following issues:

  1. Is the Appellant’s employment agreement unenforceable because she signed it after she started working and was not provided with fresh consideration?
  2. Does the termination clause contravene the Employment Standards Act because it excludes Deeley’s statutory obligation to make benefit contributions during the notice period and it does not satisfy Deeley’s statutory obligation to pay severance pay?
  3. Did the motion judge err by fixing the period of reasonable notice at nine months?

Laskin J.A. for the Court of Appeal accepts the Appellant’s second issue; sets aside the Motion Judge’s order, and concludes the termination clause contravenes the Employment Standards Act for two reasons:

  1. It excludes Deeley’s statutory obligation to contribute to the Appellant’s benefit plans during the notice period;
  2. It does not satisfy Deeley’s obligation to pay severance pay.

In the result, the Appellant is entitled to both the notice period originally assessed by the Motions Judge as well as the costs of the motion and appeal ($14K for the motion and $25K for the appeal inclusive of disbursements and taxes).

Importance:

Citing Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986, 1992 CanLII 102 (SCC), the Court of Appeal endorsed the view that the enforceability of a termination clause “stands or falls” on its wording, rather than on what an employer provides after termination.

While the termination clause provided two weeks’ notice of termination of pay in lieu of notice for every year or partial year of employment, critically it did not provide for the continuation of benefit contributions. The Court drew particular attention to the following:

  • “the Company shall not be obliged to make any payments to you other than those provided for in this paragraph”
  • “the payments and notice provided for in this paragraph are inclusive of your entitlement to notice, pay in lieu of notice and severance pay pursuant to the [ESA]” (See para. 38).

For Laskin J.A., the use of “all inclusive” language in the termination clause improperly excluded the Respondent’s obligation to contribute to the Appellant’s benefit plans during the notice period. (See para. 57). The Respondent’s actual conduct following the Appellant’s termination was not determinative of the outcome – good employer behaviour cannot remedy an otherwise illegal/unenforceable termination clause. (See paras. 44-45).

For the Court of Appeal, the termination clause’s wording excluded and contracted out of the obligation to continue making benefits contributions during the notice period. It was “not merely silent” with respect to the Respondent’s obligation since it used language meant to reduce the employer’s obligation.

Counsel for the Appellant: Eugene Meehan, Q.C (Supreme Advocacy LLP, Ottawa); Daniel Lublin, Marc Kitay (Whitten & Lublin, Toronto)

Counsel for the Respondent: Abdul-Basit Khan and S. Priya Morley (WeirFoulds LLP, Toronto)

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Posted: Wednesday, March 01, 2017