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Singh v. Qualified: Termination Clauses are Unenforceable When They Fail to Clearly Contract Out of Common Law Rights
While much of the recent case law on termination clauses turns on whether the clause complies with the Employment Standards Act, 2000 (the “ESA”), Monkhouse Law recently argued a case that turned on a different issue: whether the clause clearly contracted out of the common law right to reasonable notice.
In Singh v. Qualified Metal Fabricators, a wrongful dismissal matter, the Plaintiff brought a claim for reasonable notice. The Defendant unsuccessfully argued that the Plaintiff’s entitlement to notice was limited to the ESA minimums due to the termination clause in their employment agreement, which provided him with four week’s notice. Monkhouse Law represented the Plaintiff and successfully argued that the clause was unenforceable. The Plaintiff was awarded four months’ notice.
In March of 2011, the Plaintiff Roy Singh (Mr. Singh) was hired by the Defendant Qualified Metal Fabricators (Qualified) as an assembler. His regular duties involved assembling and spot welding prefabricated parts in Qualified’s sheet metal and custom metal fabrication facility.
Mr. Singh worked at Qualified for just over four years and was terminated without cause in May of 2015 due to a shortage of work. At the time of his termination, he was paid four weeks’ worth of wages, the minimum amounts specified by the ESA. The employer alleged that this amount was in full satisfaction of its contractual obligations to Mr. Singh pursuant to the termination clause in his employment contract.
The employment contract contained the following termination clause:
Start date to three months: this length of service is a probationary period and the employee is not entitled to any notice or salary in lieu of notice, if the company decides, in its discretion, that your performance or suitability are unsatisfactory, or that you are unwilling or unable to properly carry out your duties.
Three months to one year – one-week notice.
One year to three years – two weeks’ notice.
Three years and over – one week notice for each year of employment to a maximum of eight weeks.
This policy shall be maintained in accordance with the Employment Standards Act.
The primary issue at stake was the enforceability of the clause.
If the clause was enforceable, the Plaintiff was entitled to only the ESA minimums, which had already been satisfied. If the clause was unenforceable, the Plaintiff was entitled to reasonable common law notice.
The Defendant argued that this clause sets out the full entitlement of an employee to payment in the event of termination and that the language stating that the termination policy “shall be maintained in accordance with the Employment Standards Act” clearly displaces any potential claim for reasonable common law notice and ensures its compliance with the ESA.
On behalf of the Plaintiff, Monkhouse Law made submissions that the clause in question was vague and was silent on the issue of common law notice. As such, it failed to clearly contract out of Mr. Singh’s common law right to reasonable notice. Secondly, the clause on its face is in violation of the ESA for failing to provide proper notice to employees at the one and three year points.
Analysis and Decision:
Justice Stinson conducted a two-pronged analysis of the clause:
1. Does the termination clause rebut the presumption that the common law notice period continues to apply; and if so,
2. Is the clause in violation of the ESA by providing less than is required, rendering it unenforceable?
The analysis starts with the oft-stated principle that all contracts of employment, where the employment is for an indefinite period, contain an implied term: when the employer dismisses the employee without cause, the employee is entitled to reasonable notice of their dismissal.
While the employer drafted the contract and could have easily included specific language contracting out of the common law, it elected not to do so. At best, Justice Stinson found that the clause left an open question about whether or not it displaced the common law. Therefore, it was ambiguous. That ambiguity must be construed against the employer, given the power imbalance in the relationship.
The court further held that even if the clause had been drafted in a manner that clearly contracts out of the common law, it was in violation of the ESA, as it was unclear at the precisely one and three year marks how much notice an employee was entitled to under this clause. This means an employee may receive less notice than is required by the ESA.
As such, the clause was held to be unenforceable and Mr. Singh’s notice period was increased from four weeks to four months under the common law reasonable notice.
If your contract contains a clause limiting your entitlements at termination, that clause may be unenforceable. If you are terminated and your employer provides you with limited notice or ESA minimums, you may be entitled to additional notice or compensation in lieu of.
Monkhouse Law has helped hundreds of employees like Mr. Singh obtain fair compensation at termination using a wide range of tools from negotiation to litigation. Contact Monkhouse Law today for a free telephone consultation.
Employment contracts should be drafted by an experienced employment lawyer to ensure that the termination clause is enforceable should the need to terminate arise. To ensure predictability and limit the risk of costly litigation, contact a trusted employment lawyer when drafting contracts or terminating an employee.
Monkhouse Law offers flat fees for termination assistance services and employment contract drafting. Contact Monkhouse Law today for a free consultation regarding your workplace law needs.
About the Author:
at Monkhouse Law where she represents employers and employees in Employment, Human Rights and Disability Insurance Law matters. Laura was co-counsel on the Singh decision and can be reached at firstname.lastname@example.org.