Case In Point
OCA Affirms Termination Clause in Employment Contract Does Not Violate ESA
Date: July 24, 2013
The Court of Appeal for Ontario has upheld a motion judge’s finding that a termination provision in an employment contract was not an attempt to contract out of the Employment Standards Act, 2000 (“ESA”).
In Dimson v. KTI Kanatek Technologies Inc., the plaintiff had been terminated and in accordance with his employment contract, he was paid his minimum entitlements which the employer calculated on the basis of his last twelve weeks’ employment. Since the plaintiff had not received a bonus during that twelve week period, the defendant did not include any bonus amounts in this calculation.
The plaintiff argued that the termination provision was void in its entirety for violating the contracting out provision of the ESA, as clause 18(d) in effect waived a minimum standard. The termination provisions in dispute stated:
18(c) In addition, KANATEK may terminate this Agreement at its sole discretion for any reason, upon providing Employee all payments or entitlements in accordance with the standards set out in the Ontario Employment Standards Act, as may be amended from time to time.
18(d) If at any time KANATEK provides you with a bonus, it will not be included in the calculation of payment for the purpose of this Article or as otherwise agreed to or required by the Employment Standards Act.
The motion judge disagreed with the plaintiff’s argument, stating that “the language in clause 18(d) preserves the plaintiff’s right to the inclusion of a bonus in the calculation of his termination entitlements if he and the defendant otherwise agreed or if it was required by the ESA.” This was the “plain, literal and sensible” meaning of clause 18(d).
That finding was upheld by the Court of Appeal, which found that clause 18(d) preserved “the appellant’s right to the inclusion of a bonus in the calculation of his termination entitlement if both parties otherwise agreed or if it was required by the ESA.” It stated:
 We agree with the motion judge’s observation that it would be inconsistent to interpret 18(d) as denying the appellant his entitlement under the ESA when 18(c) expressly provides that the appellant would be provided with everything to which he was entitled under the ESA.
The employer in this case was successfully represented by Hicks Morley.
What should employers take away from this decision? First, saving language in an employment contract (such as the reference to full compliance with the ESA in this case) can be helpful in court; it can provide the much-needed harmony between the contractual language and an interpretation of that language which is compliant with the ESA. Second, courts will carefully scrutinize termination provisions in order to ensure outcomes that are both logical and fair. Although in this case the termination provisions were upheld, employers should thoroughly address the structure and language of any termination provisions with their employment counsel. Not only can we assist with ensuring there is internal consistency and a lack of ambiguity in the contract, but we can also discuss the types of termination clauses that will put you in the best light at court if the clause is challenged. Experience shows that it is always better to put this time and effort in at the front-end in order to benefit from these provisions later on.