Employment agreements frequently contain saving provisions, also known as fail-safe provisions. These provisions are meant to ensure that if an employee’s employment agreement provides for less than the statutory minimums upon termination, the employee will receive the statutory minimums instead.
Employers should be wary of putting too much faith in saving provisions’ ability to uphold illegal termination clauses. The Ontario Court of Appeal’s recent decision in Rossman v. Canadian Solar Inc., 2019 ONCA 992 confirms that a saving provision will not fix an employment standards violation.
Mr. Rossman’s employment agreement termination clause contained a saving provision that stated:
In the event the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the notice or payments in lieu of notice contemplated under this agreement.
However, the termination clause ended with the phrase “Benefits shall cease 4 weeks from the written notice.” This statement would violate the Ontario’s Employment Standards Act, 2000 (the “ESA”) after Mr. Rossman completed five years of service. Canadian Solar Inc. terminated Mr. Rossman without cause just under two years after he signed his employment agreement. Mr. Rossman brought a wrongful dismissal claim. The lower court found that the termination clause was void and unenforceable, and awarded Mr. Rossman common law reasonable notice.
The Court of Appeal dismissed the appeal.
The court rejected Canadian Solar Inc.’s argument that the clause did not violate the ESA because it gave Mr. Rossman greater benefits than the statutory minimum if he was terminated in the first three years of his employment. The court held that it did not matter that the clause accorded with the ESA in certain circumstances. As the clause was offside of the ESA notice requirements at the outset, it was void and unenforceable. The court could not save the clause with the benefit of hindsight.
The court held that the termination clause was void and unenforceable because it was ambiguous. On termination, an employee is presumed to be entitled to common law notice of termination, unless the employee’s employment agreement clearly specifies some other period of notice. The parties’ intention to displace common law notice must be clearly expressed in the contract language used by the parties. When a termination clause could reasonably be interpreted in more than one way, courts choose the interpretation that gives the greater benefit to the employee.
In this case, the court found that the termination clause was ambiguous and the ambiguity was not erased by the saving provision. The initial 'ESA trumps' language and the concluding 'but nothing above 4 weeks' language were at odds. The court held that a saving provision cannot be used to rewrite a termination clause that attempts to contract out of employment standards legislation.
The court explained the policy rationale behind its decision: employees need to know the conditions of their employment with certainty and employers must have an incentive to comply with the ESA's minimum notice requirements. As such, employers cannot be permitted to draft provisions that take advantage of the fact that many employees are unaware of their legal rights.
Western employers can take the Ontario Court of Appeal’s comments regarding termination clauses with a grain of salt, as courts in Ontario tend to be stricter in their interpretation of termination clauses. However, the Rossman decision does follow Shore v. Ladner Downs,  B.C.J. No. 1045 (B.C.C.A.), a seminal B.C. case that stands for the proposition that for a termination provision to be valid, it must be valid at all times. Ultimately, employers are always better off ensuring that their termination clauses are enforceable so as not to depend on saving provisions. Employers who have questions about the enforceability of termination clauses in their employment agreements may contact members of our Labour and Employment Group.
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Lawson Lundell's Labour and Employment Law Blog provides updates on the most recent legal developments impacting the Canadian workplace and offers practical tips for employers. We cover a range of topics, including labour relations, employment law, collective bargaining, human rights, employment standards, employment equity, workers' compensation, business immigration, privacy, occupational health and safety and pensions and employee benefits.