Saturday, 28 May 2016

Divisional Court endorses Wunderman, Rejects Ford v Keegan

If an employment contract’s termination provision has the potential to violate the Ontario Employment Standards Act, 2000, but is legally compliant at the time of termination is it legal or not?

The issue has been litigated several times. On February 16, 2016, the Honourable Justice Laurence A. Pattillo, writing on behalf of the Ontario Divisional Court, provided his position on the debate in the case of Garreton v Complete Innovations Inc., 2016 ONSC 1178 .

Facts

The case came before the Divisional Court by way of an appeal from a decision of the Small Claims Court. (Appeals from the Small Claims Court lie first to the “Divisional Court” before they can be appealed to the Court of Appeal for Ontario.)

At issue was whether the following contractual provision was legally enforceable or void ab initio:

Complete Innovations Inc. [the employer] 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.

The termination provisions set forth above represent all severance pay entitlement, notice of termination or termination pay in lieu thereof, salary, bonuses, automobile allowances, vacation and/or vacation pay and other remuneration and benefits payable or otherwise provided to you in relation to your employment by Complete Innovations Inc. and any preceding employment by any company.

The Employer argued that if the contract was legally enforceable, then the dismissed employee, who had been employed for a little more than two years, was entitled to a maximum of two weeks’ pay in lieu of reasonable notice

Decision

Justice Pattillo disagreed with the employer and found the contract to be no good. Justice Pattillo provided the following reasons for the court’s decision:

[18] Section 5 of the [Employment Standards] Act prohibits the contracting out of the Act. Section 57 of the Act provides for the same notice as the Agreement for an employee like Garreton of more than one year but less than three years employment – two weeks.

[19] But Garreton argues that the termination provision is contrary to the Act and therefore void and unenforceable in two respects. First, based on the last paragraph of the provision, it offends Garreton’s entitlement under the Act. Further, the provision offends the severance provisions of ss.64 and 65 of the Act and therefore potentially applies to Garreton.

[20] The last paragraph of the termination provision provides as follows:

The termination provisions set forth above represent all severance pay entitlement, notice of termination or termination pay in lieu thereof, salary, bonuses, automobile allowances, vacation and/or vacation pay and other remuneration and benefits payable or otherwise provided to you in relation to your employment by Complete Innovations Inc. and any preceding employment by any company.

[21] I do not consider that the above provision affects Garreton’s entitlement at the time of her termination. She received her pay to the date of termination along with accrued vacation pay. The payment for two weeks’ notice and benefits was all she was otherwise entitled to, had CI followed the Agreement.

[22] Sections 64 and 65 of the Act provide that where an employee has 5 or more years employment and the company has a payroll of $2.5 million or more, the employee is entitled to effectively a further week for each year of employment for severance pay over and above termination pay. CI has a payroll of more than $2.5 million. Clearly therefore, the termination provision, which limits pay in lieu of notice to 8 weeks maximum and the above provision which includes severance pay in the notice are contrary to the Act in that they limit an employee who is terminated and entitled to severance pay to less than he or she is entitled to under the Act.

[23] While the termination clause is therefore void and unenforceable for a CI employee of more than 5 years, is it so for Garreton who was an employee of less than 3 years?

[24] Garreton relies on Wright v. The Young and Rubicam Group of Companies (Wunderman)¸ 2011 ONSC 4720. In that case, Low J. found that a notice provision in an employment contract was void for potentially violating the Act.

[25] In that case, as here, the contract provided for the proper notice under the Act given the employee’s years of employment but was contrary to the severance provisions in ss.64 and 65.

[26] In reaching her decision, Low J. relied on Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; Shore v. Ladner Downs, [1998] B.C.J. No. 1045 (B.C.C.A.) and the obiter comments by M. D. Forrestall J. in Slepenkova v. Ivanov,

[2007] O.J. No. 4708 (S.C.J.) aff’d 2009 ONCA 526 ,

[2009] O.J. No 2680 (C.A.). CI in turn relies on the more recent case of John A. Ford & Associates Inc. (c.o.b. Training Services) v. Keegan, 2014 ONSC 4989, where Price J., after considering the above cases disagreed with Low J.’s decision and held that the contract of employment, “must conform to provincial employment standards legislation for the particular employee, in the particular circumstances (para. 150).

[27] With the greatest of respect, I disagree with Price J.’s conclusion. In my view, the employment contract must be considered at the time it is executed. If the termination provision is not onside with notice provisions and severance provisions (if applicable) of the Act at the outset, then it is void and unenforceable. Potential violation in the future is sufficient. As Low J. states, “It is not that difficult to draft a clause that complies completely with the Act, no matter the circumstance.”

The agreement not being enforceable the trial judge’s initial award of five month’s pay in lieu of notice was upheld.

Commentary

This blog has looked at both the Wunderman and Keegan decisions; see Poorly Drafted Employment Agreement Proves Costly and Judge says 30-Day Notice Provision is Okay.

I have consistently been ‘team Wunderman.’ When Justice Price released his reasons for decision in Keegan, I wrote the following under the heading “Why I Feel Compelled to Disagree”:

… I take serious issue with the logic contained within paragraph 151 of Justice Price’s reasons for decision, where His Honour comments, “This would require the notice period in a contract of employment for a new employee to meet the minimum notice requirements for an employee of the longest conceivable years of service.” What Justice Price appears to be saying is that, in order for Justice Low’s reasoning to be correct, a contractual termination provision would only be legal if it provided for the maximum amount of minimum termination pay available to any employee. That is not how I read Justice Low’s decision. What Justice Low said is, the contractual provision must be legal under all applicable circumstances in order to be valid. There are, in fact, easy ways to draft such language and those do not require employers to provide employees with no less than 34 weeks of combined termination pay and statutory severance.

Employment lawyers in Ontario still need a decision from the Court of Appeal. So far none of the cases to seriously consider this issue have made it to ‘the big show.’ (If there is a decision, I would be gladdened if someone advised me of it.)

For now there is some ambiguity in the law, with at least one judge of the Ontario Superior Court saying that a contract need only be ‘good’ at the time of termination, while others, now including Justice Pattillo, have come down on the side of the requirement for the contract to be legal under all possible scenarios.

Takeaways for Employees with Labour Pains

The takeaway for employees with labour pains is that litigation is uncertain. Just because most judges see things one way does not mean that another judge will agree.

If you are an employee in Ontario and you have been let go from your job, it is usually worth it to speak with an experienced employment lawyer. If you find yourself in a situation where your employer is attempting to limit your severance entitlements by way of a contractual termination provision, then you should absolutely seek an opinion from an employment lawyer as to your rights.

If you are an individual looking for assistance with respect to the interpretation or legality of the terms of your employment contract, the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP would be happy to be of service to you.

Takeaways for Employers with Labour Pains

The takeaway for employers with labour pains is that it absolutely pays to use written employment agreements. The employee in this case was paid $63,500 per year. If the contract was enforceable, then the employer’s maximum exposure would have been $2,442.31; instead it was ordered to pay over ten times that amount, plus costs both at trial and on the failed appeal. (Costs of the failed appeal were awarded to the employee in the amount of $8,235.00, plus HST.) Not even accounting for the employer’s own lawyer, the difference is roughly $40,000!

It will not be free to have an experienced employment lawyer prepare employment contracts for your employees. However, it will not cost $40,000 either. If you are an employer in Ontario and are looking to limit your financial exposure, it would pay to speak with an experienced employment lawyer. The professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP would be happy to be of service to your business or organization.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

Sean Bawden, publisher of Labour Pains, can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321.

Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.



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