Termination Clause Violates Canada Labour Code Thus Reasonable Notice Applies :

In Sager v TFI International ( 2020 ONSC 6608) Davies J. reviewed a termination clause which was governed by the Canada Labour Code and found it to be unenforceable. Almost all the previous attacks on termination clauses, at least in Ontario courts, have been under the Employment Standards Act of Ontario.

On its face, the contract provided for more termination and or severance pay than would ever be required under the CLC. Remember that the minimum requirements under the CLC are very minimal, nothing like the ESA .

The Plaintiff’s contract provided for certain benefits in addition to his salary, including a car allowance of $900 per month, participation in a group insurance plan and pension plan, and participation in a bonus program with a value of up to 30% of his base salary.

Section 231(a) of the CLC says that the employer cannot “reduce the wages or alter any other term or conditions of employment” during the notice period.

The notice period under the CLC is only two weeks. The rest of the statutory requirement is severance pay.

The termination clause said that the only payment that the plaintiff would get on termination pay was as set out in the agreement, which meant that he would not receive his car allowance, benefits , bonus or pension for the two week period following his dismissal.

The Court therefore found that the termination clause violated Section  231(a) of the CLC and therefore was null and void.

That section reads as follows:

 Where notice is given by an employer pursuant to subsection 230(1), the employer

  • (a) shall not thereafter reduce the rate of wages or alter any other term or condition of employment of the employee to whom the notice was given except with the written consent of the employee; and

This is what the Judge said :

[19] The termination clause of Mr. Sager’s contract intends to limit TFI’s obligation to. a single lump sum payment. The clause does not say that it is intended to be inclusive of the statutory requirements for severance and termination pay only. It says the lump sum payment is inclusive of all requirements under the CLC. If the lump sum payment is treated as inclusive of all requirements under the CLC, it excludes any payment on termination for Mr. Sager’s pension, car allowance or bonus, which were all the terms and conditions of Mr. Sager’s employment. It would also exclude the continuation of Mr. Sager’s benefits during the notice period. In my view, the meaning of the agreement it clear: Mr. Sager was entitled to a payment equal to three months of his base salary and nothing more during the notice period. This amounts to a change in Mr. Sager’s terms of employment during the notice period, which is inconsistent with s. 231(a) of the CLC.

[20] I, therefore, find that the termination clause in Mr. Sager’s employment contract isvoid and the presumption that Mr. Sager is entitled to reasonable notice on termination has not been rebutted. 

This is, in my opinion, a remarkable decision for the following reasons;

I am not aware of any other case where the CLC has been used to overturn a termination provision.

Even though the cash payment required by this clause greatly exceeded the requirements of the CLC, simply because it left out some relatively minor compensation items, it was found to be null and void.

The ESA has a similar provision in Section 60 (1) (a) which reads as follows:

(1) During a notice period under section 57 or 58, the employer,(a) shall not reduce the employee’s wage rate or alter any other term or condition of employment;

This gives employees another method of setting aside even those termination provisions which, on the surface, seem to exceed the ESA minimums.