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Gazing Into the Future: Why Your Contract Should Protect More Than Just You

Gazing Into the Future: Why Your Contract Should Protect More Than Just You

What makes a contract? In the broadest of terms it is an agreement between two parties, there are obligations, and the party performing duties under the contract has to receive something in exchange for doing so. 

While employment contracts (those agreements between employers and employees that dictate the terms of the working relationship) are slightly more complex, the principles are similar, but with one added requirement. For an employee covered by the Employment Standards Act, 2000 (the law that governs most employees in Ontario, better known as the “ESA”), their employment contract cannot violate the ESA.

Sounds simple enough, right? Of course a contract cannot break the law, otherwise how would it be considered a legally binding contract? 

The most important part of an employment contract is arguably the termination clause. While the rest of the contract can dictate an employee’s salary, benefits, duties, etc., the termination clause determines what happens when employment ends, and what a terminated employee is entitled to. If an employee chooses to commence legal proceedings against their former employer for wrongful termination, it will essentially come down to what was in the termination clause. 

As the Courts have said, these clauses have to, at the very least, play by the law. In a leading 2011 case called Wright v. The Young and Rubicam Group of Companies, the Honourable Justice Low wrote: 

“There is, in my view, no particular difficulty in fashioning a termination clause that does not violate either the minimum standards imposed by the Employment Standards Act or the prohibition against waiving statutory minimum requirements and there is no compelling reason to uphold a termination clause which the draftsman may reasonably be understood to have known was not enforceable either at all or under certain circumstances.”

Or, as Elle Woods more succinctly put it in the film Legally Blonde, “what, like it’s hard?”

But just how far does this provision go? Does a contract have to consider every possibility, including possible future scenarios that don’t come to fruition? 

The short answer is yes. In Garreton v. Complete Innovations Inc., 2016 ONSC 1178, the employer had appealed the lower court's decision after the court awarded the employee $25,000 for being terminated after 5 months of work. The employee was fired after an angry outburst at work involving some physical violence. Instead of relying on the list of termination causes provided in the contract, the employer used a provision of the ESA to terminate the employee for ‘wilful misconduct, disobedience, or wilful negligence of duty.’

The lower court judge had reasoned that because the employee was not terminated for cause based on the reasons in the contract, then it did not really matter whether or not the contract itself was valid. But the judge hearing the appeal decided to dig a little deeper…

Here, for the record, is part of the termination clause from the contract:

Otherwise Complete Innovations Inc. may at any time terminate this agreement by providing the Employee with (1) one week notice if their duration of continuous employment with the Company is more than 3 months but less than 1 year.  (2) weeks prior written notice of intention to terminate if the Employee duration of continuous employment with the Company is more than 1 year but less than (3) years.  If the duration of continuous employment with the Company is more than 3 years each additional year will entitle the Employee to (1) one additional week of notice to a maximum of 8 weeks. …  Complete Innovations Inc. shall maintain on your behalf your employee benefits for a period of not less than the period required by applicable statute.

In court, the employer had argued that even though the employee was not terminated based on the contract, she still received the termination pay she would have been owed under the contract, and under the ESA. 

But the problem with this clause has nothing to do with this employee. For employees over 5 years of service, where the company has a payroll of over $2.5 million (more about that here) or there has been a mass termination of 50 or more employees, the employee is owed severance pay along with termination pay, which is guaranteed under the ESA. The ESA also states that a contract that does not follow it to the letter is considered void and unenforceable at law. 

So what does that all mean? Even though the problems with this employment contract did not impact this particular employee (as she had only worked for 5 months), the Court still threw out the contract as void because it did not protect against a hypothetical long-service employee. 

For employees, the lesson here is that your contract may say a lot more about your termination than you think it does. Always keep a copy of your employment contract in your personal records, and have it reviewed carefully by an employment lawyer if you are terminated from your work. The language in these contracts has to be very specific, and your lawyer may see things that you might not notice. 

For employers, employment agreements are not a ‘one and done’ scenario. The law on what makes a valid termination clause changes frequently, and what may have passed muster a few years ago may not hold up in court today. It is always a good idea to get your employment contracts reviewed regularly (every 12-18 months) by an employment lawyer to make sure the precise language meets the latest legal standards.

The bottom line is that while your contract may protect you today, you never know what could happen tomorrow…..or 5 years from now

 

And Now For Something Completely Different...

And Now For Something Completely Different...

A Piece of the Pie: Making Sense of Taxes in Employment Law Settlements

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