Worker claims termination clause violated rights, seeks substantial compensation increase
The Supreme Court of Nova Scotia recently dealt with a significant employment law case involving the interpretation of termination clauses in employment contracts.
A worker with over eight years of service challenged his former employer's decision to provide only statutory minimum notice upon termination without cause, arguing that the contract language was unclear and potentially invalid.
The worker made two primary arguments against the employer's limited severance offer. First, he argued that the termination provision in his employment agreement was ambiguous and unclear, failing to explicitly limit his entitlement to common law reasonable notice.
Second, he contended that the termination provision was void because it attempted to contract out of statutory labour protections.
The worker had been employed as a sales representative by a family-owned group operating companies in retail hospitality and alcohol beverage industries.
He worked for one of the company's divisions for 8.5 years before his employment was terminated without cause in June 2024.
His employment was governed by a letter dated January 19, 2016, which he signed during a meeting with the company's director of human resources.
The disputed termination provision stated that upon termination without cause, the worker would receive "only such minimum notice of termination, or pay in lieu thereof, and severance pay (if applicable) to which you are entitled under the Nova Scotia Labour Standards legislation."
Given his 8 years and 4.5 months of service, the company provided four weeks' pay in lieu of notice, consistent with Nova Scotia Labour Standards Code requirements, plus $6,379.18 representing earned commissions and vacation pay.
The worker's compensation structure included a base salary of $36,000 at termination, but his average annual earnings were significantly higher due to commissions averaging $36,696 in his final two years.
The employer offered an additional two weeks' pay upon signing a release, which the worker declined, choosing instead to pursue legal action.
The worker argued the provision was ambiguous and entitled him to common law reasonable notice, while the employer maintained the clause clearly restricted entitlement to statutory minimum notice only.
The court applied established principles recognising that employment contract interpretation differs from ordinary commercial contracts due to the inherent power imbalance between employers and employees.
Drawing from previous court guidance, the court noted that "the interpretation of employment contracts is one of several areas in which policy goals other than interpretative accuracy affect the interpretative process" and unless there is contrary contractual language, employment contracts "will be interpreted in a manner which further employment law principles, specifically the protection of employees who are vulnerable in dealings with their employers."
The court referenced guidance establishing that "an employment agreement must be interpreted as a whole and not on a piecemeal basis" and courts should focus on "whether the employer has, in restricting an employee's common law rights on termination, violated the employee's Employment Standards Act rights."
The court applied the demanding standard which held that limiting common law notice requires clear language.
Previous precedent established that "employment contracts for an indefinite period require the employer, absent express contractual language to the contrary, to give reasonable notice of an intention to terminate the contract if the dismissal is without cause."
The court found the termination provision ambiguous, particularly where the qualifier "to which you are entitled under the Nova Scotia Labour Standards legislation" could reasonably "be read such that it does not apply to the notice of termination" and instead "may be read to only apply to the severance pay."
The court applied the established factors used to determine appropriate reasonable notice: the character of employment, length of service, employee's age, and availability of similar employment.
These factors provide the analytical framework courts use for calculating fair compensation periods. The worker was 52 years old at termination with almost eight and a half years in sales experience.
The court reviewed numerous precedent cases involving sales representatives with similar circumstances.
The worker cited cases where courts awarded between 8-12 months' notice for comparable situations, while the employer referenced decisions awarding six months for employees with comparable backgrounds and experience levels.
After considering all authorities, the court determined that "the fair and proper notice period is eight months."
The court noted that the worker "secured new employment (he continues in this liquor sales position) approximately nine months following his termination," supporting the reasonableness of the eight-month award.
The employer argued that any damages should be limited to base salary only, excluding the substantial commission income that averaged $36,696 in the worker's final two years.
This distinction was financially significant because commissions nearly doubled his annual compensation.
The court examined the Sales Incentive Plan that originally governed commission payments, finding it explicitly limited its application to "Fiscal 2016 Sales Representative" for the "2016 fiscal year period."
The court noted that "the evidence confirms that the Sales Incentive Plan was the only written sales commission plan received by [the worker] during his time with [the employer]. Nevertheless, [the worker] confirmed in his oral evidence that various verbal plans were implemented over the years as his commission structure changed."
This evolution of commission structures over eight years substantially undermined the employer's attempt to rely on the 2016 written plan.
Applying Supreme Court of Canada precedent, the court held that "employees are entitled to their bonus during their common law notice period unless the wording of the plan unambiguously alters or removes the employee's common law rights."
Since the written plan applied only to 2016 while the worker was terminated in 2024 under different commission arrangements, the old plan couldn't limit his current entitlements. The court calculated total annual compensation at $80,000, including base salary, commissions, and benefits.
The employer argued the notice period should be reduced due to alleged failure to mitigate damages, suggesting the worker's job search efforts were insufficient.
However, the court found this argument lacked proper evidentiary support and reflected outdated assumptions about modern job searching methods.
The court distinguished older precedents that had criticised internet-based job searches, noting that referenced decisions dated back over twenty years when "the internet was fairly new, before it was fully integrated into all aspects of life."
The court found that "in today's society using the internet as a primary method for a job search cannot be viewed as a failure to mitigate."
Applying recent appellate court guidance, the court emphasised that "the party who alleges failure to mitigate has the onus of proof" and must establish evidence showing the worker "failed to make reasonable efforts to find other work" and that "had he done so, he likely would have found replacement work." The employer failed to meet this demanding evidentiary burden.
The court's determination was definitive: "[the worker] was wrongfully dismissed by [the employer]. His entitlement to damages is made out for a period of eight months."
The total award amounted to $53,333.33, less amounts already paid by the employer, plus pre-judgment interest and costs.
This substantial difference from the four weeks originally provided demonstrates the considerable financial risk employers face when termination clauses fail to meet legal standards.
The decision reinforces that "termination provisions in employment agreements are held to a higher standard of clarity than ordinary contracts" and "employees are presumptively entitled to common law notice of termination unless the wording of the standard of interpretation is higher than the usual contractual standard."
The ruling confirms that where any ambiguity exists in termination provisions, "the principle of contra proferentem instructs the court to adopt the interpretation that is most favourable to [the worker]."
