Ontario Court of Appeal ruling highlights interpretation of termination clauses

The Ontario Court of Appeal has taken a technical approach to interpreting “termination clause” in ruling that a failsafe clause that doesn’t clearly apply to the entirety of a termination clause won’t be enforceable.

“The big takeaway from Andros v. Colliers Macaulay Nicolls Inc. is that courts will pay close attention to grammar and structure in interpreting failsafe clauses and that it’s not enough to simply make a reference to the Employment Standards Act,” says Amanda Bertucci, an associate at Goodman LLP’s Toronto office. “Ultimately, the failsafe must reflect employers’ duty to give employees their statutory entitlement and be worded in an airtight way that evinces no evidence of an intention to contract out of anything.”

The case originated with Demetri Andros’ dismissal without cause from Colliers International Canada, a large commercial real estate services company. His employment contract contained a termination provision that granted Andros “the greater” of his entitlements under the ESA, “or, at the company’s sole discretion, either of the following: a. two months working notice . . . . b. payment in lieu of notice in the amount equivalent of two months base salary.”

Andros’ lawyers argued the termination clause was unenforceable because both notice clauses failed to provide entitlement to the minimum severance or benefits entitlements under the ESA. Collier argued the termination provision afforded Andros the greater of his ESA entitlement or either of the notice options.

The Court of Appeal sided with Andros, ruling the termination clause was unenforceable because the words “greater of” in the first part of the clause didn’t extend to the notice options. As the court saw it, the word “or” isolated the first part of the clause from the second, leaving Andros a choice between his ESA entitlements or the notice provisions. On this interpretation, the notice provisions stood as a separate choice that contracted out of the statutory entitlement without substituting a greater benefit.

The upshot was the entire termination clause was unenforceable, and Andros was entitled to pay in lieu of reasonable notice.

“What was fatal to the failsafe clause in this case was that it split up the failsafe and the two other options,” says Irfan Kara, an associate in Torys LLP’s litigation and dispute resolution practice. “So my advice to employers is to include failsafe provisions at the end of a termination clause because these will more likely be interpreted as extending to the entire clause than if the provision was contained amid other subclauses.”

Indeed, the Court of Appeal distinguished Andros from its previous ruling in Amberber v IBM Canada Ltd., where it upheld a termination clause that had a failsafe at the end and read as follows: “In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (statutory entitlements) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.”

Some employment lawyers, including Lisa Talbot, Kara’s colleague at Torys, have suggested that employers drafting termination clauses “reproduce” the wording used in Amberber. “The failsafe IBM used met the mustard,” she told Benefits Canada in an earlier interview regarding that case. “So don’t take any chances by departing from it.”

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