Ontario Court Holds Saving Provision in Termination Clause Unable to Remedy Termination Provision Language Breaching the ESA | Employers’ Obligations on Election Day 2019-10-16T21:28:52+00:00

Another decision of the Ontario Superior Court of Justice (“ONSC”) has shed light on what language in termination provisions would amount to a breach of the Employment Standards Act, 2000 (“ESA”) rendering the clause null and unenforceable. More importantly, the ONSC clarified the unsettled question of whether “saving provisions” can save a termination provision with language breaching the ESA.

In Groves v. UTS Consultants Inc., Mr. Groves founded a company called UTS Consultants. After over two decades, Mr. Groves and the two other shareholders sold all their shares in UTS to Oakville Enterprise Corporation. Mr. Groves entered into an employment agreement with UTS and continued to work for UTS as a senior manager. Mr. Groves was terminated without cause three years later.

The termination provision in Groves stated that the agreement could be terminated:

c) By the Company at any time without cause provided that the Company provides you with notice in writing or pay in lieu of notice (as salary continuation) or some combination thereof equal to four (4) weeks base salary for each year of service that you have with the Company calculated from the date of this letter (and, for greater certainty, excluding any period of service you had with the Company prior to the date of this letter) with a guaranteed minimum notice or pay in lieu of notice equal to three (3) months base salary; provided that the maximum notice period or pay in lieu of notice that you will receive shall in no circumstances exceed twelve (12) months. Notwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the Employment Standard Act (Ontario). In addition, the severance package will also include continuation of medical and dental benefits during the severance period. Any variable pay owing to you will be prorated for the year’s service and paid at the time of termination. For greater certainty, you agree that for purposes of calculating any entitlement which you may have arising from the termination, without cause, of your employment with the Company, any prior service with the Company is excluded and you hereby waive and release any prior service entitlements.

Mr. Groves made several submissions as to why his employment agreement with UTS breached the ESA.

The first was that it purported to waive termination pay and severance pay entitlements under the ESA.  He succeeded on this front. Section 9 (1) of the ESA deems employment to be continuous notwithstanding a sale of the employer. Though Mr. Groves signed a resignation at the time of the purchase, the ONSC held that this was in regards to his status as a director/officer of the company rather than as an employee. Additionally, section 65(2) of the ESA states that severance pay includes non-continuous service. Thus, the ONSC held that contrary to section 9 of the ESA, the termination provision stated that prior service is excluded for the purposes of calculating “any entitlement,” which would include severance and termination pay under the ESA. UTS was required to count Mr. Groves’ pre-sale service in calculating his ESA entitlements on termination.

Mr. Groves also succeeded on his second submission. Namely, that the termination provision breached the ESA because it provided for termination pay and severance pay to be determined based on “base pay” only. The ONSC held that stating pay in lieu of notice would be based on base salary is in contravention of section 60 of the ESA requiring pay in lieu of notice to include all of an employee’s remuneration and benefits for the period of notice. In addition to base salary, Mr. Groves was entitled to variable pay, pension contributions and vacation pay.

As only one breach of the ESA is sufficient to invalidate a termination provision, the ONSC did not consider Mr. Groves’ two other submissions. However, the Court turned its mind to the employer’s defence that there is a ‘saving provision’ that should be applied despite any breach of the ESA:

Notwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the Employment Standard Act (Ontario).

Relying on Rossman v. Canadian Solar Inc. (ONSC, 2018), the ONSC stated that a ‘saving provision’ cannot be used to rewrite the express language in an agreement in order to make it compliant with the ESA. In this case, the provision specifically precluded an interpretation that would include the plaintiff’s prior service with UTS.

This last finding is particularly noteworthy as the Ontario Court of Appeal recently relied on a similar saving provision to uphold a termination provision (Amberber v. IBM Canada Ltd., 2018 ONCA 571).  Accordingly, while saving provisions may still aid a properly written termination provision, employers must be careful to not rely on it alone. If you have any questions about the termination provisions in your employment agreements, please contact a lawyer at Heeney Vokey LLP who will be able to assist in drafting an effective term.

Employers’ Obligations on Election Day

Canadians go to the polls on October 21, 2019 for the federal election.  The Canada Elections Act sets out every employers’ obligations on election day.

An employee who is a Canadian citizen and is 18 years of age or older on the polling day is entitled to vote. Employees eligible to vote are entitled to have three consecutive hours to vote during voting hours on polling day.  If an employee’s hours of work do not allow for the three consecutive hours needed for the employee to vote, the employer has to give the employee time off (with pay) to vote. However, the employer can select which three-hour timeframe that the employee has off to vote. Employers cannot deduct pay for an employee’s absence from work during the time the employer grants an employee to vote. The employer is also prohibited from interfering with an employee’s right to vote or imposing penalties for the time taken off by an employee to vote.

Voting hours vary per time zone and can be found at the Elections Canada website here. Employers should direct employees with questions to Elections Canada for questions about voting on election day.