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Contracts Uncovered

Limiting an employees’ entitlement to notice on termination of employment requires a carefully worded contract. Some general rules exist. If an employer wants to limit an employees’ entitlement to reasonable notice under the common law – the contract must clearly specify what the notice period is. The contract must comply with the Employment Standards Act. If the termination clause does not meet or exceed the minimum requirements of the employment standards legislation it is unenforceable.

Courts will make every effort to read a termination provision in a manner that is favourable to the employee challenging it and will consider a number of different arguments on the issue of enforceability.

Where an employment contract is poorly written or confusing ambiguity will be resolved in favour of the party who did not draft the contract. Non-unionized employees are often in an unequal bargaining position therefore the agreement will be interpreted against the employer.

Courts are reluctant to limit an employee’s entitlement on termination of employment to only the Employment Standards Act. An employer cannot “correct” an employment agreement that offends the minimum statutory requirements. If a clause in an employment contract is “null and void” because it does not comply with the employment standards legislation it cannot be used as evidence of the parties’ agreement to a notice period less then the common law.

When drafting an employment contract an organizations size, number of workers, and payroll will be considered in entirety. Paquette v. Quadraspec confirms an employers operations will not be restricted to only the province of the workers’ employment when assessing entitlement to severance pay.

An employment contract that restricts entitlements on termination of employment to only notice and severance payments does not comply with the Employment Standards Act if it does not provide for continuation of benefits during the notice period. Benefits are an integral part of the employment relationship; employees are entitled to benefits during the statutory notice period.

Where an agreement details payments on termination as being “inclusive of all entitlements to compensation” the clause breaches the Employment Standards Act (see Wright v. Young and Rubicam Group of Companies). A poorly written contract precluding benefits on termination of employment cannot be remedied through the continuation of benefits.

On termination of employment an employee continues to be entitled to incentive (including commission payments and bonuses) and regularly paid overtime. All cash compensation (including car allowances and pension contributions) are owed during the Employment Standards Act and common law notice periods. Ultimately, if a termination provision is properly drafted and implemented it will be upheld. When drafting employment contracts seek advice from an employment law professional. While its not rocket science input from an advisor will protect your financial interests.

Conversely - employees should be wary of employment agreements and ensure they properly understand their legal entitlements.