Employers often require their employees to sign employment contracts that limit the amount of notice of dismissal they are required to provide. In most cases, the employer attempts to limit its obligation to the bare minimums under the Employment Standards Act, as opposed to the more onerous obligation of providing reasonable notice.
Many of these contracts, however, violate one or more minimum standards under the Act, which renders the entire termination provision illegal. Many judges in the last several years have granted leniency to employers, rather than overrule the illegal clause.
Recently, Whitten & Lublin was successful in convincing Ontario’s highest court to put an end to this practice, in the case of Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158. The law on this point is now clear: a termination provision that can reasonably be interpreted as contravening the Act will fail, and the employer will be required to provide reasonable notice of dismissal.
Determining whether an employment contract violates the Act is a difficult task that requires a competent employment lawyer to assess. Nonetheless, the following are a few guidelines for determining whether a contract is illegal:
- Are benefits mentioned? The Act allows employers to provide payment instead of formal notice of dismissal, provided that the employee’s benefits are continued for the minimum notice period. Since benefits are not a form of “pay”, they must be separately referenced
- Can severance be worked? Severance pay under the Act must be paid. If the contract permits an employer to satisfy all obligations with working notice, or a combination of pay in lieu of notice without separately referencing severance pay, then the contract is illegal
- How is pay in lieu of notice calculated? Pay in lieu of notice must be calculated based on what the employee would have received, had they been given working notice of dismissal. Limiting pay in lieu of notice to just base salary may violate the Act
- Does the contract exclude a minimum standard, or is it just silent? A contract that states that the employee will receive no further entitlement is more likely to be illegal than one that is silent on the point.
Illegal termination clauses come in all shapes and forms, and are used by large corporations, all the way down to small businesses. Contact our lawyers to determine your rights on dismissal.
For further reading, the judgment in Wood v. Fred Deeley Imports Ltd. can be viewed here.