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Focus: SCC needs to clarify termination clauses

Focus on Labour & Employment
|Written By Michael McKiernan

The Supreme Court needs to step in to dispel growing uncertainty over the enforceability of termination clauses, according to a Toronto employment lawyer.

Stephen Moreau, a lawyer with Cavalluzzo Shilton McIntyre Cornish LLP in Toronto, acted for the plaintiff in Oudin v. Centre Francophone de Toronto, a case that has set the employment law bar abuzz. Oudin has petitioned the nation’s top court for leave to appeal after the Court of Appeal for Ontario upheld a decision to enforce the faulty termination provision in Oudin’s contract holding his entitlements to the statutory minimums under the Employment Standards Act.

As part of the application for leave, Moreau has studied close to 100 cases that tacked the enforceability of termination clauses since the Supreme Court last weighed in on the issue in 1992. He found that in just more than 50 of the cases, the judge voided the clause, while in just less than 50, the judge came to the opposite conclusion and upheld the clause. 

“When you have that many cases in a 25-year period and the results are split almost down the middle, that just screams out for attention,” Moreau says. 

“The case law is all over the map on whether these termination provisions are supposed to be interpreted generously or strictly, which makes it nearly impossible to give advice to employees or employers about the enforceability of these clauses. It makes things complicated, and it promotes a great deal of litigation, which is not good for anyone.”

Daniel Girlando, who represented the CFT at the appeal court, says his client will resist Oudin’s leave application because it raises a number of issues not touched on by the appeal court. 

“I don’t know why the Supreme Court of Canada would start weighing in on a number of issues that don’t directly impact on this case,” says Girlando, a lawyer with Borden Ladner Gervais LLP.

The court of appeal’s brief decision in Oudin caused a stir because it upheld a decision by Ontario Superior Court Justice Sean Dunphy that appeared to go against a recent line of cases where termination clauses were voided for failing to explicitly state that severance entitlements and benefits continuation will be provided according to the ESA. 

Although CTF committed only to provide Oudin with the notice period prescribed by the ESA, Dunphy used a severability provision to cure the defects, based on the intentions of both parties. 

“Contracts are to be interpreted in their context and I can find no basis to interpret this employment agreement in a way that neither party reasonably expected it would be interpreted when they entered into it. 

“There was no intent to contract out of the ESA in fact; to the contrary, the intent to apply the ESA is manifest,” Dunphy wrote in his original decision, back in October 2015. 

The three-judge panel of the appeal court justice sidestepped the severance and benefits issue and instead focused on Dunphy’s framing of the case as a contractual interpretation issue. 

“The motion judge’s decision was based on his interpretation of a contract. He considered the circumstances of parties, the words of the agreement as a whole and the legal obligations between the parties,” the panel wrote in the June 28 endorsement. 

“The motion judge’s interpretation of the contract is entitled to deference.”

Moreau says he and his client were “very disappointed” with the appeal court decision, calling the result “untenable.” 

Under the common law, he says, Oudin, a 13-year employee who was 68 at the time of his termination, would have received more than a year of pay and benefits. 

Under the ESA, he was entitled to just 21 weeks of pay and eight weeks of benefits coverage.    

“To suddenly be told in two months you could have no health coverage, for someone in their late 60s, that can be quite devastating,” Moreau says. 

According to Moreau, termination clauses need to meet a high bar for enforcement due to the significant gap between entitlements under the ESA compared with the common law. 

“It should require a clause that is very clear, and that an average layperson could understand,” he says. 

“It’s hard enough for a layperson to understand the effect of a termination clause without having to read a partially defective clause in the light of a further generic savings clause. For him to give up a year of benefits for that clause is a result that I find untenable.” 

However, Sean Porter, a Toronto lawyer who represents employers in labour and employment matters, says he welcomes the departure from the previous line of case law that voided termination clauses for failure to mention ESA entitlements.  

“I think there is something to be said for the approach taken in this case where the Superior Court judge took a look at the real intention of the parties, which was not to contract out of the ESA,” says Porter, who practises at McCarthy Tétrault LLP. “You don’t have to go to great lengths to find a way to invalidate the clause.” 

Jed Blackburn of Cassels Brock & Blackwell LLP says the Court of Appeal’s endorsement of Dunphy’s “common sense” approach to termination clause interpretation will boost employers, but it is unlikely to signal a major shift in the approach judges take to the issue. 

“In terms of challenging enforcement clauses, the upper hand is still safely with the employee, but this helps to re-balance the debate a little,” he says.

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