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Termination Clauses: Contracting out of Common Law Notice

Whitten and Lublin | Apr 26, 2018

Within an employment context, an employer can usually end employment without there being misconduct by the employee by providing notice or payment equal to earnings throughout the notice period. Under the Employment Standards Act, an employee is generally owed a week of notice for each year of service, to a maximum of 8 weeks.

These are minimal entitlements that must be owed. Under common law, employees may be entitled to significantly more notice or pay in lieu. Termination clauses, however, can limit notice to minimal entitlements under employment standards law. The key here is that the clause must be clear and unambiguous. In doing so, however, does the clause have to make specific reference to common law notice so that the employee clearly understands what he/she is forfeiting in order to accept employment?

The answer here is no, which was affirmed in the case Nemeth v. Hatch Ltd (2018 ONCA). Here, Nameth had over 19 years of service with Hatch Ltd. when he was terminated and given his entitlement under the termination clause, precluding him from pursuing any entitlements under common law. The termination clause stated:

The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.

Since the language here was deemed to be unambiguous, it was ruled to be valid. Specifically, the parties were able to form clear expectation at the time of the agreement, which contributed to the validity of the clause. The court did rule, however, that the employee here was entitled to 19 weeks payment and not 8 weeks as under the Employment Standards Act (2000). This was due to the interpretation of this specific clause.

Overall, it is clear that there are many technicalities of law that apply to the language of termination clauses. It is therefore advisable to seek legal advice by an employment lawyer before agreeing to or formulating a termination clause. Common law entitlements compared to minimal entitlements under the law may be far apart leading to vastly different outcomes. it is important to understand both types of entitlements whether an employee or an employer.

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