Ontario Court of Appeal Upholds Termination Clause Limiting Employee to ESA Minimums in Bertsch v. Datastealth Inc.

The Ontario Court of Appeal has delivered a significant decision in Bertsch v. Datastealth Inc., wherein the Court confirmed that properly drafted termination clauses can limit employees to only their statutory minimum entitlements under the Employment Standards Act, 2000 (ESA) upon termination.

Background

The plaintiff served as a vice-president at Datastealth Inc. for eight and a half months with an annual base salary of $300,000. Following his termination without cause, the plaintiff received four weeks’ pay in lieu of notice, inclusive of his one-week ESA minimum entitlement. Dissatisfied with this outcome, the plaintiff initiated legal proceedings seeking 12 months common law reasonable notice damages for wrongful dismissal.

The employer brought a motion under Rule 21.01 of the Rules of Civil Procedure asking the Court to interpret the termination provision in the plaintiff’s employment agreement and to strike his claim as disclosing no tenable cause of action.

The Termination Provisions

The employment agreement contained two provisions central to the dispute:

The Primary Termination Clause stated:

“Termination of Employment by the Company: If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the Ontario Employment Standards Act, 2000 and its Regulations, as may be amended from time to time (the “ESA”), including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.

You understand and agree that compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment, or pay in lieu thereof. You further understand and agree that this provision shall apply to you throughout your employment with the Company, regardless of its duration or any changes to your position or compensation.”

The “Failsafe” Provision in Section 11(a) provided:

“If any of your entitlements under this Agreement are, or could be, less than your minimum entitlements owing under the Ontario Employment Standards Act, 2000, as amended from time to time, you shall instead receive your minimum entitlements owing under the Ontario Employment Standards Act, 2000, as amended from time to time.”

Lower Court Ruling

As we reported in our previous Case in Point, the Court rejected the plaintiff’s argument that the termination clause was void for not clearly referencing what entitlements the employee would receive in the event of a termination that falls within the circumstances set out in ESA Regulation O. Reg. 288/01 (i.e., confirming that the employee would receive their statutory minimum entitlements in the instance of a termination for “wilful misconduct, disobedience, or wilful neglect of duty”).

Justice Stevenson found the provision to be clear and unambiguous and consequently struck the plaintiff’s claim without leave to amend.

At the Court of Appeal

The plaintiff appealed to the Court of Appeal, maintaining that the termination clause was ambiguous because an ordinary person not trained in law might interpret it to mean they could be terminated for cause without notice for conduct such as negligence, thereby rendering it unenforceable.

A three-judge panel unanimously dismissed the appeal, finding no error in the motion judge’s conclusion. In doing so, they made several key determinations:

The termination provision was clear and unambiguous when reasonably interpreted.
The clause explicitly stated that an employee terminated “with or without cause” would receive the minimum entitlements under the ESA and its regulations.
Adopting the interpretation proposed by the plaintiff would require ignoring the words “with or without cause” contained in the agreement.
The proper question was not whether an ordinary person might arrive at an incorrect interpretation, but how the agreement could be reasonably interpreted.
When reasonably interpreted, the termination provision did not contravene the minimum standards guaranteed by the ESA.

The Court reiterated the principle from Amberber v. IBM Canada Ltd., that while ambiguous termination clauses should be interpreted to favour employees, a finding of ambiguity requires “something more than the mere existence of competing interpretations.” The Court found no such ambiguity in this case.

Key Takeaways

The Court of Appeal’s decision provides confirmation that termination clauses, when done right, will be found to be enforceable. The decision also confirms that employers may use Rule 21 as a mechanism to have the court determine the enforceability of a termination provision at the outset of litigation.

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©

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