Nov 15

Not All Saving Clauses Will Fix a Broken Termination Clause: Groves v UTS Consultants Inc.


In Groves v. UTS Consultants Inc. (2019 ONSC 5605), the Superior Court of Justice was faced with another termination provision that attempted to limit the employee to the minimum notice requirements under the Employment Standards Act, 2000,(“ESA”) ousting the more lengthy reasonable common law notice.

In this instance, the Plaintiff sold his business, resigned from that business, and then entered into an employment agreement with the purchasers. His employment was terminated after 3 years.

The issue central issues in dispute were whether the termination clause in the employment agreement was invalid for expressly violating the ESA and whether it was ‘saved’ by the language in the clause otherwise promising to comply with the ESA.

The employment agreement stated the following the employee could be terminated:

“c) By the Company at any time without cause provided that the Company provides you with notice in writing or pay in lieu of notice (as salary continuation) or some combination thereof equal to four (4) weeks base salary for each year of service that you have with the Company calculated from the date of this letter (and, for greater certainty, excluding any period of service you had with the Company prior to the date of this letter) with a guaranteed minimum notice or pay in lieu of notice equal to three (3) months base salary; provided that the maximum notice period or pay in lieu of notice that you will receive shall in no circumstances exceed twelve (12) months. Notwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the Employment Standard Act (Ontario). In addition, the severance package will also include the continuation of medical and dental benefits during the severance period. Any variable pay owing to you will be prorated for the year’s service and paid at the time of termination. For greater certainty, you agree that for purposes of calculating any entitlement which you may have arising from the termination, without cause, of your employment with the Company, any prior service with the Company is excluded and you hereby waive and release any prior service entitlements.”

The plaintiff challenged the validity of the clause arguing that the termination clause expressly ousted his previous service with the Company, which was a violation of s.9(1) of the ESA which deems employment to be continuous notwithstanding a sale of the employer and s.65(2) where severance pay covers non-continuous service. The Court agreed.

The Court found the resignation did not sever the employment relationship between Mr. Groves and UTS as it was “an entirely artificial attempt to create an interruption in employment when in fact there was none:”Ariss v. NORR Limited Architects & Engineers, 2018 ONSC 620, 291 A.C.W.S. (3d) 543””.

Accordingly, the Court found there to be a violation of the ESA.

Then the court examined whether the savings provision in the clause – that “the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the ESA” – was enough to fix the otherwise illegal clause and limit the employee to the minimums under the ESA. The court determined it did not.

Specifically, the Court found :

When the employer has sought to contract out of the ESA, a saving provision cannot be used to rewrite the express language in an agreement to cause it to comply: Rossman v. Canadian Solar Inc., 2018 ONSC 7172 (CanLII), 300 A.C.W.S. (3d) 69, at paras. 67-70. The Termination Provision cannot be interpreted to comply with the ESA because, contrary to s. 9(1), it specifically precludes an interpretation that would include Mr. Groves’ prior service with UTS. As a result, the saving clause does not assist and the Termination Provision cannot be read up in order to bring it into compliance with the ESA.

Previously there was ambiguity regarding whether a savings clause could operate to fix any illegal termination clause. This decision seems to signal that if there is an express violation of the ESA a savings clause will not revive the termination clause. In other words, if an employee is told they will get a severance package that would otherwise violate the ESA, a catch-all that tries to suggest the ESA will not be violated is meaningless.

If you are an employer or employee who has questions about the validity of your contract, contact Monkhouse Law today for a free 30 minute consultation.