Ontario Court of Appeal Upholds Enforceability of Notice-Only Termination Provision

In a good news decision for employers, the Ontario Court of Appeal recently dismissed an appeal of the summary judgment decision of Justice Sean Dunphy which upheld a termination provision that permitted the employer to terminate the employee by providing the “minimum notice required under the Employment Standards Act”. Notably, the termination provision in question in Oudin v Le Centre Francophone de Toronto did not include any reference to severance pay or continuation of benefits, which employee counsel will typically argue renders a termination provision invalid. Copies of the Court of Appeal’s decision and the underlying decision of Justice Dunphy can be found here and here, respectively.

In upholding the termination provision, the Ontario Court of Appeal found that Justice Dunphy had considered the circumstances of the parties, the words of the agreement as a whole and the legal obligations between the parties, and did not err when he held that the parties had intended to apply the Employment Standards Act, 2000 (“ESA”): Specifically, the Court of Appeal upheld Justice Dunphy’s following conclusion:

Contracts are to be interpreted in their context and I can find no basis to interpret this employment agreement in a way that neither party reasonably expected it would be interpreted when they entered into it. There was no intent to contract out of the ESA in fact; to the contrary, the intent to apply the ESA is manifest.

Justice Dunphy in fact went even farther and in his lengthy underlying decision rejected the employee’s argument that any potential interpretation that would result in a hypothetical contravention of the ESA was sufficient to render a termination provision invalid. Instead, Justice Dunphy focused on the true intentions of the parties and held that they had intended notice of termination to be limited to the notice prescribed by the ESA, and that in any event, any technical objections could be cured by the employment agreement’s severability provision.

The Court of Appeal did not conduct an independent analysis of the termination provision but instead dismissed the appeal on the basis that Justice Dunphy’s interpretation of the contract was entitled to deference and that he had not erred in concluding the termination provision was enforceable. Nonetheless, this decision is a useful tool for employers as it emphasizes the importance of the reasonable expectations of the parties when interpreting a contract (including employment contracts), and may represent a move away from extreme interpretations or hypothetical scenarios being used to invalidate termination provisions contrary to the intentions of both employers and employees.

Of course, regardless of whether a termination provision is ultimately held to be enforceable, there is no substitute for a carefully-drafted employment agreement. Indeed, a clear, unambiguous termination provision can go a long way in avoiding litigation altogether.