In BC and Ontario, courts have followed the principle that if a termination clause in an employment contract may violate a requirement under the applicable Employment Standards legislation at some foreseeable point in the future, it is void from the outset. For example, if a contract states that an employee is only entitled to two-weeks of notice or severance, then it could be void because that employee could eventually be entitled to more under Employment Standards minimums, even if, at the actual time of termination, the employee’s Employment Standards entitlement is two weeks or less.
In a recent case, Lawton v Syndicated Services Inc., the Provincial Court of Alberta rejected this reasoning and found that a termination clause providing only four-weeks of notice on termination was enforceable. The employee in that case had only been employed for approximately 20 months and would have only been entitled to one week under Alberta’s Employment Standards Code. Thus, at the time of termination, the termination clause did not violate the Employment Standards Code and the court found it was enforceable.
The court also noted that the employment agreement, including the termination clause, was the subject of negotiation between the employee (who had been employed as a Chief Operating Officer) and employer. The court commented that parties should have the freedom to negotiate terms of a contract and that a court should enforce those terms so long as they do not conflict with statutory obligations.
This case and another recent Alberta decision in Bryant v Parkland School Division provide some assurance that termination clauses may be easier to enforce in Alberta, so long as they do not violate the Employment Standards Code at the time of termination. Arguably, the Alberta approach is more logical and consistent with the general legal principle that a contractual provision should only be struck down for conflicting with a statute if enforcing it in the relevant circumstances would be inconsistent with the statute. It should be noted that if the employee had worked for more than 6 years, the employee would have been statutorily entitled to 5 weeks and the termination clause would therefore be void. Thus, it is still recommended that employers review their termination clauses to ensure that they comply with Employment Standards minimums in all foreseeable circumstances.
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