“Pursuant to the ESA ” Not Good Enough To Oust the Common Law of Reasonable Notice :

In Movati Athletic ( Group) Inc v Bergeron ( 2018 ONSC 7258) the Divisional Court heard an appeal regarding the following termination clause :

Movati Athletic Inc. may terminate your employment without cause at any time during the term of your employment upon providing you with notice or pay in lieu of notice, and severance, if applicable, pursuant to the Employment Standards Act, 2000 and subject to the continuation of your group benefits coverage, if applicable, for the minimum period required by the Employment Standards Act, 2000 as amended from time to time.

The Analytical Process :

What is interesting about this case is that the Court sets out in detail the issue how you go about analyzing whether a ESA contractual provision rebuts the presumption of common law entitlement to reasonable notice. This is what they say :

The steps to be followed in determining whether a contractual provision can rebut common law notice are as follows:

1.      All contractual provisions must meet the minimum notice requirements for termination without cause set out in the ESA: Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC)[1992] 1 S.C.R. 986[1992] S.C.J. No. 41, at p. 998;

2.      There is a  presumption that an employee is entitled to common law notice upon termination of employment without cause;

3.       Provided minimum legislative requirements are met, an employer can enter into an agreement to contract out of the provision for reasonable notice at common law upon termination without cause: Nemeth v. Hatch Ltd., 2018 ONCA 7 (CanLII), 287 A.C.W.S. (3d) 291 (Ont. C.A.) at para. 11 citing Machtinger at pp. 1004-1005;

4.      The presumption that an employee is entitled to reasonable notice at common law may be rebutted if the contract specifies some other period of notice as long as that other notice period meets or exceeds the minimum requirements in the ESA: Machtinger supra, at p. 998;

5.      The intention to rebut the right to reasonable notice at common law “must be clearly and unambiguously expressed in the contractual language used by the parties”: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII)134 O.R. (3d) 481, at para. 40;

6.      The need for clarity does not mean a specific phrase or particular formula must be used, or require the contract to state that “the parties have agreed to limit an employee’s common law rights on termination”. The wording must however, be “readily gleaned” from the language agreed to by the parties: Nemeth at para. 9;

7.      Any ambiguity will be resolved in favour of the employee and against the employer who drafted the termination clause in accordance with the principle of contra proferentum: Miller v. A.B.M. Canada Inc., 2015 ONSC 1566 (CanLII)27 C.C.E.L. (4th) 190, at para. 15 (Div. Ct.); Ceccol v. Ontario Gymnastic Federation (2001), 2001 CanLII 8589 (ON CA)55 O.R. (3d) 614 (C.A.), at para. 45; and

8.      Surrounding circumstances may be considered when interpreting the terms of a contract but they must never be allowed to overwhelm the words of the agreement itself: Sattva at para. 57.

Why the Clause is Unenforceable:

Applying those above  principles the Divisional Court found that the ESA clause was not enforceable for the following reasons:

  1. [36]           The words “pursuant to the ESA” may be interpreted to mean that the notice period in the termination clause complies with the minimum requirements in the legislation, but they do not clearly provide that reasonable notice at common law no longer applies.
  2. The contract must be read as a whole. In this case the parties used different language in the probationary clause  than they did in the termination clause. The fact that they used different language for different clauses means that they desired different results . In the probationary clause they were careful to use the words ” only ” and “minimum ” whereas in the termination clause they used ” pursuant to the ESA “
  3. The judge found that there was ambiguity in the termination clause:

[45]           The words in this termination clause provide that “the notice provision” is “pursuant to the Employment Standards Act” and group benefits coverage payments must be in accordance with the “minimum period required by the Employment Standards Act”.  Read together, the minimum period required by the ESA could refer to both the notice provision and the group benefits coverage, or only to the group benefits coverage.

[46]           The rule of contra proferentum provides that, where there are two plausible interpretations, the courts should prefer the interpretation that grants better rights to the employee, who did not draft the provision:  Wood at para. 28.

4.  The trial judge said that the situation would have been different if the clause had used the word “only” as that would have brought home the concept that the employee would only get his ESA minimums and not any common law entitlements.

The Divisional Court noted that ” there is no requirement at law to include a warning sign in a termination clause. ”

The judgement notes that the parties agreed that the ESA clause complied with the ESA, however the Court found that it did not sufficiently rebut the common law term of reasonable notice .

I disagree that this clause complies with the ESA for the following reasons :

  1. The clause is applicable to terminations without cause. Presumably that means that for terminations with cause the employee gets zilch. The ESA  has a different and higher standard which is ” an employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer ” ( see ESA Reg 288/01 sections 2(1) 3 and 9 (1) 6 ) . This makes the clause illegal as it offers less than the ESA . In other words an employee can be terminated at common law for just cause and not receive any reasonable notice but still be entitled to their ESA minimums.
  2. Vacation pay is payable on termination pay but not on severance pay. The clause makes no reference to that separate entitlement and by not requiring this to be paid , it pays out less than the ESA, thus the clause is illegal.

I note that neither of these arguments have been been yet adjudicated upon by the Courts.