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Termination Clauses and Constructive Dismissal Claims

Whitten and Lublin | Feb 21, 2018

When an employer unilaterally changes an essential term of the employment contract, the only remedy in employment law would be for an employee to claim constructive dismissal. What this means is that the employer imposed a change that made it reasonable for an employee to resign, which for all intents and purposes the courts see as a wrongful dismissal by the employer. The employee may then claim damages in the form of notice (or ‘severance’) pay. Common law notice pay is typically more than the severance pay guaranteed under employment law; pursuing a constructive dismissal claim, therefore, may entitle an employee to significantly more in damages.

An issue arises, however, when an employee’s termination pay is limited by a termination clause within his/her employment contract. In this instance, an important question is whether the unilateral change by the employer to the employment contract voids the termination clause. If so, the employee would be entitled to greater damages; conversely, the employee’s entitlements would be significantly less if limited by the termination clause.

In the case of Moore v. Apollo Health & Beauty Care, 2017(ONCA), this question was specifically addressed. In the case, Ms. Moore was found to be constructively dismissed due to changes in her payment scheme (lunches, sick days, and overtime payment). Ms. Moore argued that because the employer here violated the employment contract, the contract was therefore void. As such, it was argued that the violation of the employment contract voided the termination clause within the employment contract.

The court disagreed, stating that the employer was entitled to rely on the termination provisions that they had initially agreed upon with Ms. Moore. The court relied upon prior case law, including the case of Simpson v. Global Warranty, 2014 (ONSC), which determined that a constructive dismissal claim does not necessarily void a negotiated termination clause. In this particular instance of constructive dismissal, the court maintained that the changes to the employment contract were not severe enough to void the negotiated termination clause in the employee’s contract.

For employees, there are a few key points to be aware of here. Firstly, the degree to which the employer unilaterally alters an employment contract may play a factor in determining whether the agreed upon termination clause is still enforceable. Secondly, in the Moore case above, the termination clause accounted for unilaterally imposed changes to the employment contract (duties, conditions, etc.). The court did not elaborate upon this aspect in detail, which leaves uncertainty as to whether such a provision saves termination clauses under any instance of constructive dismissal. Due to the aforementioned uncertainties and developments thought the courts, it is always advisable for employees to seek consultation with an employment lawyer if considering a constructive dismissal claim. Termination clauses will in almost all cases significantly limit damages to which an employee is entitled.