Termination clauses are tools that employers can use to limit the notice require to pay employees who are terminated without cause. While statutory minimums often only provide for small periods of notice, common law has evolved to consider a number of factors relating the employee that have been used to extend this amount of notice needed. By drafting termination clauses, employers can hope to avoid some of these extended periods (or higher amounts) of notice. However, as seen in a recent decision from the Ontario Superior Court of Justice, these clauses have to be written up in as clear a manner as possible if they do, in fact, want to limit their obligations to employees.

The termination

The employee began working with the employer on March 8, 2010. He is a chartered professional accountant and took on the position of Senior Director of Finance with the company.

The company presented the employee with an employment agreement which included a clause discussing termination of employment. It stated that his employment count be terminated

“a)      By the Employer,

1. i)      For Just Cause at any time by the Employer without notice and without any payment in lieu of notice.  “Just Cause” includes, without limitation, misconduct by the Employee, any breach or non-observance by the Employee of any of the conditions or obligations of this Agreement, any neglect or refusal by the Employee to carry out any the Employee’s responsibilities hereunder, any negligent performance of such responsibilities, and any insubordinate or insulting behaviour towards the Employer, its customers, donors, fellows, employees or contractors, the public or any other person, individual, entity or party in the habit or business of dealing with the Employer; or
2. ii)    Without cause, upon providing the Employee with the minimum notice for the time employed as determined under the Employment Standards Act, 2000(Ontario), as amended or replaced from time to time,

And the Employee specifically acknowledges and agrees to the above and hereby waives any claim to further notice or payment or compensation.”

The employee eventually rose through the ranks to become Vice-President, Finance, which included a raise.

While in the position of Vice-President, Finance, the employee used his work computer to download a program which allowed him to then download media files such as movies and television shows. He was assisted in this endeavor by the employers IT department. He watched these programs while he was at work, usually on his lunch hour. He continued to download files between 2012 and 2016.

The employee was terminated without cause on March 7, 2016 for reasons unrelated to his use of his computer to download copyright material. He was offered a severance package as part of his termination which included a lump sum payment equivalent to seven months’ pay.

Reconsidering their offer

It was only after the employee was terminated that the employer noticed he had been using his computer to download television shows and movies. The employer determined they had an after-acquired cause, and if they had known about the employees practices, they would have terminated him for cause. As a result of this as well as the employees attempt to secure more severance, they sought to revoke his severance package entirely (except for what was mandated by statue).

As a result of this, the court was tasked with determining whether the employee’s conduct warranted termination for cause, and if not, whether the employer could rely on the Termination Clause to limit the amount of severance offered.

Regarding the first point, the court determined that even if the employer had discovered the downloaded documents early on, the employee’s use of his computer to download copyright material was not serious enough to warrant termination with cause.

The court then turned to whether they employer could limit the amount of severance paid even when the employee is terminated without cause. The court determined the provision was “void on account of its non-compliance with the Employment Standards Act, 2000.” The reasoning behind this is because “It sets up an entitlement to only the minimum notice under the Employment Standards Act, 2000, and thereafter specifically states that the employee ‘waives any claim to further notice or payment or compensation.’  It is clear that statutory entitlements, such as severance pay and benefit continuation, are excluded.”

When it comes to employment contracts and workplace policies, the employment team at HMC Lawyers is an invaluable resource for employers and employees. We offer exceptional and responsive service to help our clients avoid exposure to unnecessary legal risk and potential disputes.