In Garreton v Complete Innovation ( 2016 ONSC 1178 ) the Divisional Court, on an appeal from a Small Claims Court matter, found that the time to examine a contract for its enforceability is at the time of execution, not at the precise date of termination.
This was the contractual provision under review:
Otherwise Complete Innovations Inc. may at any time terminate this agreement by providing the Employee with (1) one week notice if their duration of continuous employment with the Company is more than 3 months but less than 1 year. (2) weeks prior written notice of intention to terminate if the Employee duration of continuous employment with the Company is more than 1 year but less than (3) years. If the duration of continuous employment with the Company is more than 3 years each additional year will entitle the Employee to (1) one additional week of notice to a maximum of 8 weeks. … Complete Innovations Inc. shall maintain on your behalf your employee benefits for a period of not less than the period required by applicable statute.
The defect was that it failed to provide for the payment of severance pay under the Employment Standards Act. At the time of her dismissal the plaintiff has just over 2 years service, therefore not entitled to ESA severance pay (as you must have at least 5 years service unless it is a mass layoff).
The Employer argued that at the time that they terminated her employment, giving only two weeks notice under the contract was legal and it mattered not if she had been terminated after 5 years of service that the contract would not have been in accordance with the ESA and thus the employee would have been entitled to common law reasonable notice.
This is what the Court said on this issue:
23 While the termination clause is therefore void and unenforceable for a CI employee of more than 5 years, is it so for Garreton who was an employee of less than 3 years?
24 Garreton relies on Wright v. Young & Rubicam Group of Cos., 2011 ONSC 4720 (Ont. S.C.J.). In that case, Low J. found that a notice provision in an employment contract was void for potentially violating the Act.
25 In that case, as here, the contract provided for the proper notice under the Act given the employee’s years of employment but was contrary to the severance provisions in ss.64 and 65.
26 In reaching her decision, Low J. relied on Machtinger v. HOJ Industries Ltd.,  1 S.C.R. 986 (S.C.C.); Shore v. Ladner Downs,  B.C.J. No. 1045 (B.C. C.A.) and the obiter comments by M. D. Forrestall J. in Slepenkova v. Ivanov,  O.J. No. 4708 (Ont. S.C.J.) aff’d  O.J. No. 2680 (Ont. C.A.). CI in turn relies on the more recent case of John A. Ford & Associates Inc. v. Keegan,  O.J. No. 3995 (Ont. S.C.J.) where Price J., after considering the above cases disagreed with Low J.’s decision and held that the contract of employment, “must conform to provincial employment standards legislation for the particular employee, in the particular circumstances (para. 150).
27 With the greatest of respect, I disagree with Price J.’s conclusion. In my view, the employment contract must be considered at the time it is executed. If the termination provision is not onside with notice provisions and severance provisions (if applicable) of the Act at the outset, then it is void and unenforceable. Potential violation in the future is sufficient. As Low J. states, “It is not that difficult to draft a clause that complies completely with the Act, no matter the circumstance.”
28 Accordingly, for the above reasons, I find the termination provisions of the Agreement respecting notice to be void and unenforceable.
In the end the the 43 year old Trainer with 2.3 years service who was making $62,500 per year got a 5 month notice period, well above her ESA minimums.
In my opinion this is the correct approach as otherwise an employment contract could be legal one day and void the next, which would add considerable uncertainty to an already difficult time for both employers and employees.
Employers can easily draft clear and legal termination clauses. The Courts should not help them clean up poorly drafted ones.