Attention Employers: It’s Time to Audit Your Employment Contracts

Employment contracts shouldn’t be considered “set it and forget it” documents. With what feels like almost constantly evolving case law, employers need to keep contracts up to date or risk having key provisions thrown out by a court. 

If a termination clause is found to be invalid, the promises in your contract (most typically limiting notice to minimum standards) can be replaced by much more generous common law entitlements. Depending on the circumstances, that could mean months of additional pay you didn’t budget for. 

In this blog, we’ll take a brief look at two recent decisions in Ontario, which are now heading to Ontario’s top court, and explain what it could mean for your contracts going forward. 

Ontario’s Duelling Decisions 

Recently, two Judges of Ontario’s Superior Court of Justice seemed to come to two different conclusions about similar phrasing found in the termination provisions of two employment contracts. 

In the first case, the Court found, in part, that the phrase “we may terminate your employment at any time” was unenforceable. The Court concluded that the termination provision was unenforceable because Ontario’s Employment Standards Act prohibits the employer from terminating at particular times, including at the conclusion of an employees leave or in reprisal for attempting to exercise a right under the Act. Given the ESA prohibits termination at these times, a provision allowing for termination “at any time” was unenforceable according to the Court. 

In the second case, the Court found, in part, that the phrase “…the Company may terminate your employment at any time for any reason…by providing you with only the minimum statutory amount of written notice required by the ESA…” was in fact enforceable. While the Court acknowledged the result in the first case, it determined that the termination provisions in each case were distinguishable. Unfortunately, the Court did not explain exactly how the two provisions differed. 

Now What? Appeals and Takeaways

As it turns out, Ontario’s top court has just announced that it will hear the appeal of the two cases together early next year.  This should hopefully bring some much needed clarity on the enforceability of termination provisions which include the term “at any time”. 

If you’ve made it to this point of the blog, despite the caselaw discussion, congratulations and thank you for letting us nerd out. Now’s let’s talk in practicalities:

• As you may have noticed, Ontario Courts have a lot to say about whether or not a termination provision will really hold up;
• If the termination provision in your employment agreement doesn’t hold up, the promises in your contract when it comes to termination entitlements could be replaced by far more generous entitlements; 
• From our perspective, it’s always the right time to get in touch, to have your employment contracts audited for compliance.