ONCA's Wood is Lovely, Dark, and Deep
Employment contracts can be a tricky business. They can be beneficial both for employers and employees because they set out the terms of the employment relationship, and each party’s obligations to each other. Yet, like most contracts, their primary purpose is often to set out what happens when that contractual relationship ends.
At issue most often for employment lawyers is the language of the termination clause in these contracts. When crafted in a certain way, a termination clause can restrict an employee who is terminated without cause to only what they are owed under the relevant employment legislation, and nothing more. However, when these contracts are missing some crucial wording, a terminated employee can argue that they are not bound by the language in the contract, and can make a solid legal argument for a much longer notice period, or, simply put, more money.
Now that we have that out of the way, follow me as we go, for lack of a better pun, into the Woods.
The Wood in this case (Wood v. Deeley Imports Ltd., 2017 ONCA 158) is Julia Wood (“Wood”), who was a sales and event planner with Fred Deeley Imports (“Deeley”) for 8 years until her termination in 2015. When she was terminated, Deeley paid Wood her termination and severance pay that she was owed under the Employment Standards Act, 2000 (“ESA”), plus a lump sum equivalent to eight (8) extra weeks worth of pay.
Nonetheless, Wood brought a motion before the Court that her contract, or at least its termination clause, were unenforceable and so she should be entitled to a larger notice period. The Court said no, Wood’s contract was enforceable, and so she is not entitled to any more money. However, the Court additionally found that if her contract were found to be flawed, then she should the equivalent of 39 weeks' worth of pay. Wood appealed the decision.
A bit more background: For a termination (without cause) clause to be valid, it was previously thought that a termination clause needed to have three key elements in order to pass muster with the court. It needed to be in line with the ESA by specifically offering termination pay (or pay in lieu of notice), severance pay (even if severance pay under the ESA did not apply), and a continuation of benefits through the notice period. The employee is supposed to be ‘made whole’ during the notice period as if they had continued working, hence the continued benefits.
Yet some recent decisions have called all this into question. In an Ontario Court of Appeal decision from last year called Oudin, a termination clause that said nothing about some of these ‘required’ elements was deemed to be okay, leaving most employment lawyers scratching their heads. Even more confusing, that original clause was in French, so most lawyers were unable to understand the finer nuances of the contract's wording.
Thus employment lawyers have been awaiting the Wood decision with bated breath in the hopes that it would clarify once and for all what is required of a termination clause for it to hold up in court. Well….
Here was the termination clause in Wood’s contract:
[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks’ notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph, except for any amounts which may be due and remaining unpaid at the time of termination of your employment. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000. [Emphasis added.]
This clause does a few things right. It says that Wood would be paid notice pay and severance pay if she was terminated without notice in accordance with the ESA. That part is crucial, as the ESA sets the minimum standards, and while parties can contract to pay more than the ESA anything that pays less is technically illegal.
However, the Court ruled the clause invalid because of one key word missing: benefits. Employers are not legally required to pay employees benefits, BUT if the employee is regularly paid benefits, then the ESA guarantees the employee those benefits must continue through the notice period.
When she was terminated, Wood was actually paid more than she was owed under the ESA, so that was never at issue. Yet the Court held that Wood's employment contract failed not just because it was silent on benefits, but because it also claimed that “the Company shall not be obliged to make any payments to you other than those provided for in this paragraph.”
Think this sounds complicated? You’re not alone. In a 2005 case called Roden, the Court of Appeal upheld a termination clause that did not mention benefits. Yet even while it was silent on the issue of benefits, it did not have 'all inclusive' language similar to the clause above. In this case, because it didn’t mention benefits but also said that’s all that she would get if she was terminated, it then violated the ESA.
So, as the great Taylor Swift would ask, are we out of the Woods?
Frankly, it’s difficult to tell at this point. As with any major court decision that makes new law (usually from the Court of Appeal or the Supreme Court), lawyers will watch for how future judges interpret the decision and apply it to a variety of future scenarios.
We know for sure that an employment contract cannot violate the ESA, and so it must offer everything mandated under the ESA in order to meet the minimum legal requirements. How it presents that offer though is apparently open for interpretation. Previously, most lawyers would have assumed that a clause that did not explicitly mention all the elements would not have been considered valid. Now, based on this decision and the recent one in Oudin, it’s fair to say that all bets are off.
For employers, the main lesson is the age-old: don’t try this at home! If these cases make anything obvious, it’s that employment contracts are incredibly intricate, and have to be uniquely tailored for that particular employment relationship. Grabbing a template off the web will almost certainly not include the language necessary for the contract to hold up if challenged in court. Additionally, as the law changes with some frequency, these contracts should be reviewed regularly to make sure the language is up to date with the latest standards.
On the other hand, this case puts many employees’ battles ‘in the clear’ (sorry, Taylor). The honest truth is that many employment contracts are either based off of poorly worded templates that may not apply to that particular employment relationship or jurisdiction, or contain dated language and have not been revisited since the employee started working. Just because a contract was good in the 1980s or 1990s, it does not mean that same contract will hold up today. For employees under a poorly-worded or out-dated contract who are terminated, cases like these are another powerful tool in the arsenal.
Whether you’re an employer trying to draft a strong contract, or an employee trying to get out of a weak one, I’m happy to help. Contact me today to set up a consultation.