Jan 10

Court of Appeal axes savings clause to incentivize employers to comply with ESA: Rossman v Canadian Solar Inc.


A large part of employment litigation is dealing with the enforceability of termination clauses however it seems that in the last five years or so there has been an uptake in the courts grappling with this issue.

If you have read our blogs before, you may have come across members of our team blogging about the various cases that have been decided relating to the enforceability of termination clauses in employment contracts. In general, termination clauses in employment contracts are bad for employees – they most often allow employers to pay employees less termination pay in the event of a termination without cause than the employer would otherwise have to. Moreover, since employees have little bargaining power when they accept a job – and unless they hire a lawyer to advise them at the time they are hired – employees are unlikely to understand what is at stake when they sign an employment contract with a termination clause.

In any event, the law is quite clear that a termination clause must comply with the minimum standards of the Employment Standards Act, 2000, failing which, the entire clause will be struck and the employee will be entitled to reasonable common law notice (i.e no restrictions on the employee’ entitlement on termination)

Things get a little tricky for the courts, however, where there is a termination clause that does provide less than one or more of the minimum standards prescribed by the ESA but then also includes language which effectively says: “if for some reason our termination clause provides you with less than what the ESA requires you receive, you will receive your ESA entitlements”. Courts typically refer to these types of provisions as “saving provisions”.

In Rossman v Canadian Solar Inc, 2019 ONCA 992, the Court of Appeal for Ontario was faced with a termination clause in an employment contract that contained one of these “saving provisions”. In the end, the Court found that the termination clause was unenforceable notwithstanding the savings language. The Court distinguished the termination provisions in Rossman to the termination provisions that were found to be enforceable in another Court of Appeal case dealing with a saving provision: Amberber v IBM, 2018 ONCA 571.

Perhaps most importantly, the Court of Appeal in Rossman made the following observations at paras 39-41:

[39]      I make a final observation. Employees need to know the conditions, including entitlements, of their employment with certainty. This is especially so with respect to an employee’s termination – a fragile moment of stress and uncertainty.

[40]      In this context, saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards. Holding otherwise creates the risk employers will slip sentences, like the four-week benefits clause, into employment contracts in the hope that employees will accept the terms. This outcome exploits vulnerable employees who hold unequal bargaining power in contract negotiations. Moreover, it flouts the purpose of the ESA – to protect employees and to ensure that employers treat them fairly upon termination: Machtinger, at pp. 1002-3.

[41]      While employers are entitled to contractually amend the ESA’s notice requirements, as long as they respect the minimum standards, they are not entitled to offend them. Employers must have an incentive to comply with the ESA’s minimum notice requirements. They cannot be permitted to draft provisions that capitalize on the fact many employees are unaware of their legal rights and will often refrain from challenging notice provisions in court: Machtinger, at p. 1004. Attempting to reconcile the provisions of the Termination Clause with the benefit of hindsight runs counter to the remedial purpose of the ESA.

In this blogger’s opinion, the Court’s comments reproduced above strongly signal that going forward, termination clauses that violate one or more ESA minimum standards but then also have a saving provision, will not be enforced by the Courts. The message from the Court of Appeal is quite clear – that employers cannot simply add saving provisions to cure their otherwise defective and ESA-offending termination provisions.

If it were otherwise, it would allow employers to try and flout the ESA minimum standards without any consequence other than facing an order to comply in accordance with the saving provision. This is hardly any incentive at all to ensure that termination provisions are compliant from the get-go. Accordingly, the Court’s comments in Rossman are a welcome development and provide further clarity with respect to the ongoing development of the law as it relates to the enforceability of termination clauses in employment contracts.

If you have been terminated from your employment and your employer is relying on a termination clause which purports so govern your entitlements on termination, it’s important you consult with a lawyer. Call Monkhouse Law today for a free 30-minute phone consultation.

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