The Ontario Superior Court of Justice (“ONSC”) recently released a new decision on the use of “saving provisions” in employment agreements that may have serious implications for the enforceability of termination clauses. As many employers know, enforceable termination clauses that limit employees’ common law termination entitlements are essential to minimize the costs involved with ending employment relationships, but courts strictly scrutinize and frequently refuse to enforce such clauses, often for very technical reasons. Crucially, termination clauses that purport to contract out of the minimum standards prescribed by the Employment Standards Act, 2000 (the “ESA”) are void, which results in an employee becoming entitled to reasonable notice at common law, often greatly exceeding the minimum entitlements under the ESA.
Since the case law interpreting the type of contractual language that will be enforced is regularly evolving, many employers include a saving provision in employment agreements to try to guard against drafting technicalities or changes in the law that may render their termination clauses unenforceable. A “saving provision”—also known as a “failsafe” provision—typically expresses that the employee will receive at least his or her minimum entitlements under the ESA in all applicable circumstances. When a termination clause may be interpreted as contracting out of the ESA but there is another reasonable interpretation that would be in favour of compliance with the ESA, the inclusion of a saving provision may “cure” the problematic clause and prevent it from being unenforceable. We have previously written a blog about the Ontario Court of Appeal decision in Amberber, which outlined how a failsafe provision can positively impact the enforceability of problematic termination clauses. In Groves v UTS Consultants Inc. [Groves], however, the ONSC underscored that saving provisions cannot always be used to make a termination clause that contracts out of the minimum standards of the ESA enforceable.
Groves v UTS Consultants Inc.
In Groves the ONSC granted summary judgment in a wrongful dismissal action and held that the termination clause in Mr. Groves’ employment agreement was unenforceable for contracting out of the ESA, even though it contained a saving provision.
Mr. Groves was employed with the defendant employer both before and after a sale of the defendant’s business, but he was asked to “resign” and to sign a new employment agreement to continue working for the defendant after the sale, which he did. Critically, the termination clause in Mr. Groves’ new employment agreement provided that his service prior to the sale of business would not be recognized for the purposes of determining his termination entitlements and required Mr. Groves to agree to “waive and release” any entitlements arising from his prior service with the defendant. However, s.9(1) of the ESA deems an employee’s service to be continuous in such circumstances and requires that the employee’s years of service before the sale of business be included in calculating their total length of service. Consequently, the ONSC found that the termination clause in Mr. Groves’ new employment agreement violated s.9(1) of the ESA by excluding his pre-sale years of service for the purpose of determining his termination entitlements.
Although the termination clause in Mr. Groves’ new employment agreement also contained a saving provision, the ONSC held that it could not remedy the clause and render it enforceable. In this case, the saving provision stated, “notwithstanding the foregoing, the Company guarantees that the amounts payable upon termination without cause, shall not be less than that required under the notice and severance provisions of the [ESA]”. The ONSC stated that the saving provision could not be used to “read up” the termination clause to comply with the ESA because the defendant had specifically sought to contract out of s.9(1) of the ESA with express language that provided for his prior service to be excluded.
Groves makes it clear that a saving provision is not a “silver bullet” that can guarantee that any termination clause will be enforceable, regardless of what shortcomings it includes. However, this does not mean that saving provisions are ineffective or that employers should stop including them in employment agreements. As discussed above, the Ontario Court of Appeal has recently affirmed that a saving provisions can “modify” the meaning of other language in a termination clause and thereby cause it to be “read up” as complying with the ESA, at least in certain circumstances where a provision is capable of an interpretation that would bring it in compliance with the ESA.
Groves suggests that a saving provision cannot remedy a contravention of the ESA where the employer has “sought to contract out of the ESA” with “express language”, but that saving provisions may still be effective where an employer does not blatantly attempt to limit an employee’s statutory entitlements. Nevertheless, until the courts interpret this decision as well as continue to apply Amberber in future cases, the effectiveness of saving provisions remains in flux.
As a best practice, employers should ensure that the termination clauses that they use in their employment agreements comply with the minimum standards of the ESA, and then incorporate saving provisions as a backup measure, after having first ensured compliance with an employee’s ESA entitlements. Employers would be well advised to continue including saving provisions in their employment agreements because they may still protect against potential violations of the ESA arising from drafting technicalities or changes in the law that may render a termination clause unenforceable, thereby generally providing added assurance to employers.
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This information is not intended as legal advice.