Is Your Termination Clause Enforceable? Part 2

In our first installment I described the possible effect of well drafted termination clauses in employment contracts.  Where a termination clause is not properly drafted and fails to meet the minimum standard set in the Employment Standards Act, it will be unenforceable.  The following are some examples of termination clauses that BC courts have considered and found unenforceable.

Termination Clauses that Pro-Rate Notice for Partial Years of Service

In the first example, Ferrero v. Houston (District of), a 1998 decision from the British Columbia Supreme Court, the termination clause in the employment contract stated that the employee would receive severance pay of one week per year of service, with a portion of each year to be paid on a pro-rated basis. Although the employee would receive one week of severance pay per year of service under this clause, the fatal flaw with the termination clause was that the employee’s years of service would be prorated. The employee, with his seventeen-month length of service, would have received 1.42 weeks of notice under this termination clause. However, under the Employment Standards Act, the plaintiff was entitled to a minimum of two weeks of notice because he had more than one year of service. Because the notice in the termination clause was lower in effect than the Employment Standards Act minimum, the termination clause was unenforceable. Instead of receiving the 1.42 weeks of notice that he would have been paid according to the termination clause, the court awarded the employee compensation for eight months of notice.

Termination Clauses that Provide No Notice At All

In the second example, Stanley v. Advertising Directory Solutions Inc., a 2012 BC Court of Appeal decision, the termination clause in the employment contract stated that the employee could be terminated by the employer “at-will.” In other words, the termination clause stated that the employee could be terminated without any notice whatsoever. “At-will” termination clauses are common and legal in some parts of the United States. However, an “at-will” termination clause plainly violates the minimum notice periods set out in BC’s Employment Standards Act. The court had no difficulty finding that the termination clause violated the Employment Standards Act and was unenforceable. Despite the termination clause stating that she would receive no notice at all, the employee went on to receive 19 months of notice for her wrongful dismissal.

Termination Clauses that Potentially Violate the Employment Standards Act

In Shore v. Ladner Downs, a 1998 British Columbia Court of Appeal decision, the termination clause stated that the employee could be terminated at any time with 30 days of notice from the employer. At the time the employee was dismissed, he had only been employed for less than a year. Therefore, the 30 days of notice in the termination clause far exceeded the minimum notice that was required under the Employment Standards Act at the time of his termination. However, after five years of employment, the employee would have become entitled to five weeks of notice (35 days), and the termination clause after five years would provide for less than the Employment Standards Act minimum. Even though the employee did not make it to five years of employment, the termination clause itself was in conflict with the Employment Standards Act, and the BC Court of Appeal found the clause to be unenforceable on that basis. Instead of receiving the 30 days of notice that was described in the termination clause, the employee received five months of notice for his short term employment.

How to Approach Termination Clauses

This article provides several examples of termination clauses that have been found unenforceable. However, every employment situation is unique. Figuring out the effect of a termination clause requires a careful assessment of an employee’s situation and how that unique situation relates to the termination clause. To find out if a termination clause may be unenforceable, always seek advice by bringing it to a knowledgeable employment lawyer to discuss as soon as possible.

Although this article discusses examples of poorly drafted termination clauses, employees who are being asked by their future or existing employer to sign new employment contracts are always well-advised to consult with their employment lawyer before signing. All too often in our practice, we encounter employees who have agreed to employment contracts that are drafted entirely by the employer (or the employer’s lawyers), without the employee knowing the significant impact that certain clauses will have upon their rights. In the event that the employment relationship ends unexpectedly and without any fault of the employee, if there is a properly drafted termination clause it can mean that the employee has unknowingly signed away their rights to wrongful dismissal damages.

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About the Author

Brendan Harvey advises and represents employees and small businesses at all stages before, during, and after the employment relationship. His primary areas of practice include wrongful dismissal, employment standards, and human rights litigation. If you would like to schedule a meeting with Brendan Harvey or any other of our lawyers, give us a call at 604-988-1000.

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