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Validity of Termination Clauses in Employment Contracts

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When drafting an employment contract, employers should always be careful to ensure that any termination clauses it includes are valid both today and in the future. It is most unpleasant to enter into an employment contract thinking that you know your obligations upon termination only to find out later that they do not hold up.

 

Case Example: Garreton v Complete Innovations Inc


In Garreton v Complete Innovations Inc., 2016 ONSC 1178, the Ontario Divisional Court was asked to rule on the validity of a termination clause.


In this case, the employee, Garreton, was terminated for cause and sued for wrongful dismissal. Garreton was successful at trial and on appeal. One of the issues in the case was Garreton's amount of damages for reasonable notice of termination.  The employment agreement included a clause that limited the employee's notice on termination to the minimum notice requirements of one section of the Employment Standards Act, 2000 ("ESA"), which caps damages at eight weeks' pay.


In addition to notice of termination requirements, the ESA also includes a severance section that applies to employees with five or more years of service who work for an employer whose payroll meets a certain threshold. This is a entitlement to further payment on termination in addition to the minimum notice requirements of the Act. The key element for the purposes of this case is that this entitlement arises after five years of service.


The termination clause in Ms. Garreton's employment contract only provided her with the minimum notice under the ESA and excluded her right to severance. Though Ms. Garreton had only been employed for a couple of years and she would not have been able to receive severance at the time of her termination, the Court found that the termination clause was void as it excluded a minimum right under the ESA and reinforced the view that in such circumstances the termination provisions of the employment contract are void from the outset. The Court also indicated that compliance with the ESA is to be assessed at the time the employment agreement is executed.


This case is a good reminder to employers and their counsel to carefully consider the elements of the termination clauses in and employment contract. They should always be mindful of the minimum requirements of the ESA and carefully review the clauses to ensure that no minimum right is inadvertently excluded.


For more information, please contact Merovitz Potechin LLP at Eytan Rip at (613) 563-6691 or by email at [email protected]

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