Is it enforceable? BC court looks at compliance under Canada’s Labour Code
The Court of Appeal for British Columbia recently dealt with a case that centred on the interpretation of termination clauses in employment contracts.
In this case, a worker challenged the enforceability of a termination clause in his employment contract.
He argued that the clause was ambiguous and failed to comply with the minimum requirements set out in the Canada Labour Code.
The worker contended that these issues should render the clause unenforceable, potentially entitling him to a larger severance package.
Employment contract’s termination clause
The dispute started when a worker, who had been employed as a vice president of maintenance operations for a seaplane company, was terminated without cause in March 2020. The termination was due to a significant downturn in business caused by the Covid-19 pandemic.
The worker's employment contract included a termination clause that stated:
"The [employer] may terminate your employment at any time without cause so long as it provides appropriate notice and severance in accordance with the requirements of the Canada Labour Code." Based on this clause, the employer paid the worker two weeks' salary in lieu of notice and five days of severance pay, totalling $10,203.93.
Disagreeing with this amount, the worker started a wrongful dismissal lawsuit. He argued he was entitled to reasonable notice at common law, which would have resulted in a larger payout.
The case first went to a summary trial, where a judge ruled in favour of the employer. The worker then appealed this decision.
Is the termination clause enforceable?
The main question before the Court of Appeal was whether the termination clause in the worker's contract was enforceable.
This involved examining two key issues: whether the termination clause was ambiguous, and whether the clause complied with the minimum requirements of the Canada Labour Code.
The worker argued that the clause was ambiguous because it referred to the Canada Labour Code, which uses the phrase "at least" when describing notice periods.
He said this created uncertainty about his entitlements. The worker also claimed that the clause was unenforceable because it allowed the employer to change his employment terms by not paying his bonus and other benefits during the notice period.
‘Ambiguous’ termination clause
The Court of Appeal disagreed with the worker's arguments about ambiguity. It said that when interpreting contracts, courts must look at the entire context, not just isolated phrases.
The judge stated: "Respectfully, I do not agree with [the worker] that the 'at least' language in s. 230(1)(a) of the Code renders the Termination Clause ambiguous. Nor do I agree that the word 'appropriate' in the Termination Clause imputes a term of reasonableness into the assessment of the notice."
The court explained that the termination clause clearly showed the parties' intention to use the Code's requirements instead of common law notice.
It found that referring to statutory provisions in a contract can be enough to replace the common law presumption of reasonable notice.
Employer’s compliance with statutory requirements
On the issue of statutory compliance, the court again sided with the employer. It found that the termination clause's silence on bonuses and benefits didn't mean the employer could avoid its legal obligations.
The judge explained: “The Termination Clause simply incorporates the notice and severance provisions of the Code, effectively guaranteeing [the worker] with all that is statutorily required in relation to those provisions.”
“It is silent about [the employer's] obligations in respect of bonuses and other benefits. This silence cannot be construed as permitting [the employer] to contract out of any statutory obligations,” it added.
Court upholds employer’s termination clause
In the end, the Court of Appeal dismissed the worker's appeal. It concluded that the termination clause was enforceable because it clearly expressed the intention to use the Code's notice and severance provisions instead of common law notice.
The judge summed up the decision by saying: "In my opinion, there is no ambiguity in the parties' intentions to displace common law notice with the statutory requirements of the Code. I therefore conclude that the Termination Clause is sufficiently clear to rebut the presumption of common law reasonable notice."
The court further noted: "Accordingly, there is no basis on which to find the Termination Clause in [the worker's] contract unenforceable as being non-compliant with the Code."
