Is Your Termination Clause Enforceable? Part 1

Many employment contracts these days contain clauses that are commonly referred to as “termination clauses” (sometimes also called “fixed notice periods”, “defined notice periods”, “severance clauses”, etc).  A termination clause will usually define the exact amount of notice or severance pay that an employee will receive in the event of termination. Almost always, a termination clause will limit the employee to much less severance pay than they would otherwise be entitled to have at common law.

Impact of a Termination Clause

Often the impact of a termination clause will not be immediately obvious to an employee, and it can be couched in language referring in some way to “termination in accordance with the Employment Standards Act”, or other phrasing with a similar effect. A termination clause in an employment contract will typically limit severely the amount of notice or severance pay that the employee is entitled to receive if dismissed by the employer. Employees who would ordinarily receive compensation for many months of notice because of their dismissal may find that they are limited to eight weeks of notice or less. When employees sign employment contracts with well-drafted termination clauses, employees may unwittingly be signing away their rights to sue for wrongful dismissal in the future.

Properly Drafting the Termination Clause

It is no surprise that savvy employers elect to include termination clauses in their employment contracts. After all, well-drafted termination clauses do an excellent job to protect employers from wrongful dismissal claims. What is surprising, however, is just how often employers fail to properly draft termination clauses. There are a variety of ways that an employer can get it wrong when drafting a termination clause, typically because they fail to seek legal advice in drafting or revising the clauses.

These two articles focus on one of the most common ways that employers tend to get it wrong when drafting termination clauses: failing to comply with the Employment Standards Act. In most cases where an employer fails to draft a termination clause properly, the result is that the termination clause is unenforceable. An unenforceable termination clause means that it has no effect whatsoever, and means that the employee will typically be entitled to sue for his or her full wrongful dismissal damages, or reasonable notice.

Termination Clauses that Violate the Employment Standards Act

One of the most common mistakes that employers make is drafting termination clauses that violate the Employment Standards Act. In British Columbia, the Employment Standards Act sets out minimum termination notice periods for most (but not all) employees in the province. Employers are permitted to draft termination clauses that set any period of notice of termination, as long as that period of notice is not less than the Employment Standards Act minimum notice period.

If an employment contract has a termination clause that is effectively lower than the Employment Standards Act minimum, then that clause becomes “null and void for all purposes.” In other words, the termination clause is unenforceable and has no effect whatsoever. I will discuss several examples of termination clauses that British Columbia courts have found to be “null and void” in the second part of this post.

brendan harvey - wrongful dismissal vancouver
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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