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2018-04-29T20:08:27-04:00 April 30, 2018|Employment Contracts, Employment Law, Employment Standards|

Another Termination Clause Bites the Dust

On the unenforceable side of the contractual termination clause ledger we can add King v DST Systems Inc., 2018 ONSC 533 (CanLII).  In this case the plaintiff was terminated, without just cause, on June 8, 2016.  He was 50 years of age at the time and was employed as the Vice President, Head of Operations in Canada and had been employed for 22 months.  He earned an annual base salary of $212,400, benefits, parking paid for by the employer, bonus/incentive program and RSUs and PSUs. 

The plaintiff and employer were parties to an employment contract which was drafted by the employer that provided that his employment could be terminated without just cause by providing:

“with such notice (or pay in lieu thereof) and severance pay as may be prescribed by the ESA (or such other applicable legislation as may then be enforced)”.

The contract also provided that the plaintiff would have “no further or other entitlements in that regard”. 

The plaintiff argued that the termination clause was unendorceable and relied on the Court of Appeal decision in Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII).  Specifically, the plaintiff suggested that the clause did not provide for, among other things, benefits continuation during the notice period under the Employment Standards Act, 2000 and, therefore, was an unlawful contracting out of the ESA and void. 

The defendant argued that the “wording was sufficiently clear to fall within the Court of Appeal’s agreement with Justice Dunphy in Oudin v. Centre Francophone de Toronto, Inc., 2016 ONSC 514 (CanLII) that:

Contracts are to be interpreted in their context and I can find no basis to interpret this employment agreement in a way that neither party reasonably expected it would be interpreted when they entered into it.  There was no intent to contract out of the ESA in fact; to the contrary, the intent to apply the ESA is manifest.

The Court preferred the plaintiff’s agument and followed Wood.  Justice Gow in King stated:

The failure to specify all types of remuneration available as part of severance due and owing is contrary to my understanding of Justice Laskin’s analysis in Wood v. Fred Deeley Imports Ltd., supra.  I am reinforced in this understanding by the defendant’s acknowledgment they did not provide for all the types of remuneration it was providing to the plaintiff as part of the payment of the two weeks’ notice. 

Having found that the termination clause was unenforceable, the court awarded four (4) months as reasonable notice to October 8, 2016.  The Court awarded damages which included base salary, bonus on a pro-rated basis, the value of health benefits and parking, less all income earned which mitigates the loss. 

The Court did not award RSUs or PSUs given the wording of the plans.