Ontario Court of Appeal Says Any Defect in a Termination Clause Voids the Entire Clause:

In Andros v Colliers Macauley Nicolls Inc ( 2019 ONCA 679) the Ontario Court of Appeal considered the legality of the following termination clause:

4. Term of Employment

The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director’s entitlement pursuant to the Ontario Employment Standards Act or, at the Company’s sole discretion, either of the following:

a. Two (2) months working notice, in which case the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period.  

b. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary. 

In beginning their analysis, the Court went back to first principles, which they set out as follows:

[20]      It is not possible to simply void the part of a termination clause that offends the ESA. If a termination clause purports to contract out of an employment standard without clearly substituting a greater benefit in its place, the entire termination clause is void: North v. Metaswitch Networks Corporation, 2017 ONCA 790 (CanLII), 417 D.L.R. (4th) 429, at para. 24; Hampton Securities Limited, at para. 7. As Laskin J.A. said in Wood, at para. 21: “Contracting out of even one of the employment standards and not substituting a greater benefit would render the termination clause void and thus unenforceable”: see also paras. 64, 69. This is true even if the employee actually receives his or her statutory entitlements after termination. Accordingly, the enforceability of a termination clause is determined by the wording of the clause alone, not by an employer’s conduct after termination: Wood, at paras. 43-44.  

The Court then on to find that paragraph 4 (a) was illegal because it did not mention severance pay and paragraph 4 ( b) was illegal because it did not include either benefits or severance pay .

The Court then went on to say that because paragraphs 4 (a) and (b) were illegal, the whole termination clause was void.

[27]      Strictly speaking, given her finding that the ESA had been contracted out of under clauses 4(a) and 4(b), it was unnecessary for the motion judge to consider ambiguity. The termination clause was unenforceable given that it contracted out of statutory entitlements without substituting a greater benefit: Wood, at para. 21.

In other words, the first part of the clause guaranteeing the employee no less than the ESA ( which would seem to  be enforceable ) was in effect ” poisoned ” by the second illegal clause.

So you do really throw out the entire  baby with the dirty bathwater.

This case should have a dramatic impact on the analysis  of termination clauses because all the employee has to do is find one defect and the whole clause gets thrown out.

There are many types of ESA defects that creative lawyers have already litigated and some ideas that are yet to be tested. This case makes this search for these defects extremely important and reiterates that an all embracing ” clean up cause” may not ward off an attack.

Of course all of this could be avoided if employers drafted termination clauses that provided for somewhat more than the ESA but less than the common law.