The Ontario Court of Appeal (“ONCA”) recently affirmed that a saving provision, or a provision within a termination clause that explicitly states that the employee will receive his or her minimum entitlements at law, cannot render a termination clause enforceable, where the termination clause otherwise violates the Employment Standards Act, 2000 (“ESA”) and the employer has attempted to contract out of the ESA’s minimum standards.
Enforceable termination clauses within employment agreements are invaluable to employers because they can be used to minimize the cost of ending employment relationships. Under the ESA, employees are entitled to varying amounts of notice of termination, or pay in lieu of notice, depending on their length of service. However, if there is no valid termination clause within an employee’s employment agreement limiting the employee’s termination entitlements, they are also entitled to reasonable notice or pay in lieu of notice under the common law, which can be far greater.
Since the case law on termination clauses enforceability is highly technical and everchanging, it has become a best practice for employers to include a saving provision in every termination clause to protect against unenforceability. In Ontario, saving provisions generally provide that if a termination clause violates the ESA or is otherwise unenforceable, then the employee will only receive their minimum entitlements under the ESA. However, as we discussed in a recent blog, the Ontario Superior Court of Justice’s (“ONSC”) recent decision in Groves v UTS Consultants Inc. [Groves] has limited the circumstances where saving provisions are effective.
In Rossman v Canadian Solar Inc. [Rossman], the ONCA affirmed Groves by holding that a saving provisions cannot render an otherwise unenforceable termination clause enforceable where the employer has sought to contract out of the ESA’s minimum standards.
Rossman v Canadian Solar Inc.
Mr. Rossman began working for Canadian Solar in 2010 as a regional sales manager and was subsequently promoted to a project management role before Canadian Solar terminated his employment without cause in 2014. Mr. Rossman brought a wrongful dismissal action against Canadian solar seeking pay in lieu of reasonable notice, among other damages. Mr. Rossman and Canadian Solar brought competing motions for summary judgment.
Mr. Rossman’s employment agreement with Canadian Solar contained a termination clause with a saving provision, however it also subsequently stated that Mr. Rossman’s benefits “shall cease 4 weeks from the written notice” of the termination of his employment. Crucially, the ESA requires employee benefits to be continued throughout the statutory notice period, which can be up to 8 weeks for long-serving employees, or even longer in certain circumstances.
The motions judge granted partial summary judgment to Mr. Rossman after finding that the termination clause in his employment agreement was void and unenforceable because it was either ambiguous or an attempt to contract out of the ESA by only providing for 4 weeks of benefits continuation. Canadian Solar appealed the motions judge’s decision to the ONCA.
The ONCA affirmed that the termination clause in Mr. Rossman’s employment agreement was unenforceable because it contravened the ESA by stating that “[b]enefits shall cease 4 weeks from the written notice” and contained genuine ambiguity. In reaching this decision, the ONCA held that the saving provision in the termination clause could not make the termination clause enforceable because “saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards”. Therefore, the ONCA found that Mr. Rossman was entitled to damages in lieu of reasonable notice and dismissed Canadian Solar’s appeal.
The ONCA’s decision in Rossman affirms the ONSC’s earlier decision in Groves that saving provisions cannot make termination clauses that violate the ESA enforceable where the employer has sought to contract out of the ESA’s minimum standards. However, this does not mean that saving provisions are useless or that employers should stop including them in their employment agreements. The ONCA recently held in another decision, Amberber v. IBM Canada Ltd., that 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.
Therefore, while Rossman and Groves have made it clear that saving provisions cannot remedy termination clauses that contravene the ESA where an employer has sought to contract out of the ESA, they also suggest that saving provisions can still be effective where that is not the case. Nevertheless, until the findings of these recent decisions are interpreted further by courts, the chances of success that a particular saving provision will validate an otherwise invalid termination clause will depend on the context and the particular language within the employment agreement in question.
As a best practice, employers should ensure that termination clauses used 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 the ESA. Employers would be well advised to continue including saving provisions in their employment agreements because these provisions 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 providing added protection for employers.
For more information on recent decisions regarding termination clause enforceability, check out our most recent Year in Review edition of In the Know. The Year in Review edition of our newsletter is designed to bring you the most significant HR law developments of 2019, as well as some important trends to keep on your radar for 2020.
This blog is provided as an information service and summary of workplace legal issues. This information is not intended as legal advice.