An annual review of your company’s termination clause might seem like an afterthought in the day-to-day running of a business, but it could save thousands of dollars and many headaches.
This advice comes from Samara Belitzky, an employment lawyer with Emond Harnden, who has seen an uptick of cases surrounding termination clauses since an important provincial court of appeal decision in 2020 created a new landscape.
“The law on termination clauses has changed significantly over the last four or five years,” Belitzky says, “and so if an employer is using an employment agreement template that is older than that, it’s very important that they have it reviewed and updated because it may not comply with current law.”
Termination clauses set out entitlements for employees when they are relieved of their position. These include notice and termination pay, among others.
Ontario Employment Standards Act, 2000
Often, an employer’s existing agreement contains a termination clause that sets out an employee’s entitlements upon termination. Employers have some flexibility to implement their own terms of termination unique to them, but the language must comply with the Ontario Employment Standards Act, 2000.
However, if there is something in that termination clause that’s no longer compliant with the current law and violates the Ontario Employment Standards Act, 2000, it will be null and void. As a result, the employee will be entitled to common law notice, which means that they will be able to claim entitlements upon termination that go beyond those intended by the employer.
“Every couple of years lately, we’ve been seeing a case come out where a more novel legal argument is accepted and endorsed by the court to nullify a termination clause that would have otherwise been enforceable,” Belitzky says.
Employment relationships in Ontario are governed by the Ontario Employment Standards Act, 2000, which sets out obligations for an employer when they decide they must terminate an employee. (There are also federally regulated jobs, such as banking and telecommunications, Belitzky notes, which are governed by the Canada Labour Code instead).
Before an employer arrives at the decision to terminate an employee, there are many necessary steps if a lawsuit is to be avoided. For example, the path to terminating an employee for cause is a long journey with a high bar that must involve as much documentation, both written and verbal, as possible.
Termination for cause
“What’s important for employers to understand is that when we’re talking about cause, if an employer wants to assert that they have cause at the time of termination, it has to be based on serious misconduct that’s been committed by the employee,” Belitzky explains.
In order to be owed absolutely nothing under the Ontario Employment Standards Act, 2000, such as no notice and no termination pay, the employee has to have engaged in wilful misconduct, disobedience or neglect of duty, that is not trivial and has not been condoned by the employer, Belitzky explains. This is a higher threshold compared to that of “just cause” at common law, the latter of which does not necessarily require the employee’s misconduct to be intentional. When an employee is terminated for just cause at common law, they will be entitled to receive only the entitlements prescribed by the Ontario Employment Standards Act, 2000, unless the employee’s misconduct also meets the Ontario Employment Standards Act, 2000 threshold.
And then, if an employee is engaging in misconduct, they should receive a warning, ideally written, Belitzky says, and employers should implement progressive disciplinary action.
If there is no misconduct present or no misconduct that would constitute cause, it is classified as termination without cause, which is where the analysis must take place in terms of an employee’s termination entitlements, and where employers can run into problems if not handled correctly.
“Sometimes employers will terminate for cause where cause does not exist, which can expose an employer to liability for damages, so it’s really important that you seek legal advice from an employment lawyer if you are contemplating a potential termination,” Belitzky says.
The bottom line for employers is that termination is a complex decision that should be guided by a lawyer, potentially saving money, time and stress.
