Termination Clauses: Clearly Restrictive Language Necessary for Enforceability

The Alberta Court of Appeal recently upheld a trial decision that struck a termination clause down as unenforceable.

The Facts

The employee in Holm v AGAT Laboratories Ltd. (“Holm”) sued his employer for constructive dismissal. The employee had an employment contract which purported to limit his entitlements on termination to “a severance payment equal to the wages only that you would have received during the applicable notice period” that would, “be in accordance with the provincial legislation for the province of employment”. The contract elaborated that,


You should realize that other than the foregoing notice, or at our absolute discretion wages only in lieu of such notice, you will not be entitled to any further compensation or notice arising out of the termination of your employment by us without just cause.


You understand and agree that other than the severance set out in paragraph 2(2) above, you shall not be entitled on the termination without just cause of your employment by AGAT to any other claim or compensation, damages, payment in lieu of notice further notice of termination, or any other claim or compensation whatsoever, whether arising out of your employment by AGAT or the termination without just cause of your employment by AGAT.


The Decision

The Alberta Court of Appeal upheld the trial judge’s ruling that the language of the contract was not sufficiently clear and restrictive to limit the employee’s entitlement to that set out by Alberta’s Employment Standards Code.

The Court confirmed that simply stating that payment will be “in accordance with” the relevant employment standards legislation is insufficient to oust common law notice. The legislation requires payment to be “at least” equal to the wages the employee would have earned during the applicable notice period. Only payments below the minimum set out in such legislation are not in accordance with the legislation; in other words, payments at or above the minimum are both “in accordance” with it. As such, the language was not sufficiently clear and unambiguous to oust the common law, as it did not make clear that pay in lieu of notice would be “limited to” the minimum requirements.

The Takeaway

The language of Alberta’s Employment Standards Code is similar to that of Ontario’s Employment Standards Act, and this case is likely to be applicable across jurisdictions.

The reasoning of the Alberta Court of Appeal in this case is consistent with many prior decisions in other jurisdictions.  However, it appears inconsistent with the recent decision of the Ontario Court of Appeal in Nemeth v. Hatch Ltd. (“Nemeth”), in which a clause provided only that, “The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.”  The latter option in the clause in Nemeth is comparable to the clause in Holm, yet in Nemeth the Ontario court of Appeal found the clause sufficient to oust the common law, while, in Holm, the Alberta Court of Appeal found the language insufficient.

Due to the complexity of the case law surrounding them, termination clauses should be prepared or reviewed by a lawyer who specializes in employment law.  Such clauses should also be reviewed periodically by an employment lawyer to ensure that they remain enforceable, as the caselaw in this area will likely continue to develop.

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