Simon's Megalomaniacal Legal Resources

Employment - Contracting-Out of Common Law Pay-in-Lieu

. Howard v. Benson Group Inc. (The Benson Group Inc.)

In Howard v. Benson Group Inc. (The Benson Group Inc.) (Ont CA, 2020) the Court of Appeal affirmed that a contactual term that varies from the common law (such as in Bardal), must be "unequivocal":

[29] The respondent sought to use a fixed term contract either to eliminate its severance obligation entirely or to limit it to two weeks’ notice on an early termination. It was, of course, free to do this. But the courts have consistently held that the consequences to an employee of such a bargain are so significant that the employer must communicate clearly in the contract that this is what it is intending to do: Ceccol, at para. 27. If an employer does not use unequivocal, clear language and instead drafts an ambiguous or vague termination clause that is later found to be unenforceable, it cannot complain when it is held to the remaining terms of the contract.

[30] I conclude that the motion judge erred in not finding that the Employment Contract, without Clause 8.1, clearly established a notice period equal to the unexpired portion of the fixed term contract. The motion judge further erred in not finding that this notice period ousted the common law presumption of reasonable notice.

. Celestini v. Shoplogix Inc.

In Celestini v. Shoplogix Inc. (Ont CA, 2023) the Court of Appeal states the doctrine that parties may 'contract out' of the common law pay-in-lieu of reasonable notice doctrine ('pay in lieu'), as long as they don't violate the minimum standards of the ESA:

[30] The common law implies a term into an employment relationship of indefinite duration that the employee will receive reasonable notice before being discharged without cause. Reasonable notice is generally determined by reference to factors such as the character of the employment, the length of service, the age of the employee, the availability of similar employment, and the experience, training and qualifications of the employee: Machtinger v HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986, at pp. 998-99. It follows that what will constitute reasonable notice for a specific employee may change over time, as the employee gains greater seniority and responsibility.

[31] The law also recognizes that, as long as the minimum requirements of the Employment Standards Act, 2000, S.O. 2000, c. 41 are not infringed, parties to an employment arrangement may prescribe, by express contract, the entitlements of the employee on termination, and if they do so, these will apply instead of the implied term of reasonable notice: Machtinger, at pp. 999-1000.

. Matthews v. Ocean Nutrition Canada Ltd.

In Matthews v. Ocean Nutrition Canada Ltd. (SCC, 2020) the Supreme Court of Canada confirms that contractual employment terms which limit or eliminate common law rights (typically reasonable notice) in standard (non-negotiated) contracts, are to generally be read narrowly. The reference to Tercon places this issue on the same basis as other contractual liability allocation law:

[64] The question is not whether these terms are ambiguous but whether the wording of the plan unambiguously limits or removes the employee’s common law rights (Paquette, at para. 31, citing Taggart, at paras. 12 and 19-22). Importantly, given that the LTIP is a “unilateral contract”, in the sense that the parties did not negotiate its terms, the principle of contractual interpretation that clauses excluding or limiting liability will be strictly construed “applies with particular force” (Taggart, at para. 18, citing Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426, at p. 459). As this Court recognized in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at para. 73, albeit in the commercial context, and cited here to underscore just this point, sophisticated parties are able to draft clear and comprehensive exclusion clauses when they are minded to do so.

[65] To this end, the provisions of the agreement must be absolutely clear and unambiguous. So, language requiring an employee to be “full-time” or “active”, such as clause 2.03, will not suffice to remove an employee’s common law right to damages. After all, had Mr. Matthews been given proper notice, he would have been “full-time” or “actively employed” throughout the reasonable notice period (Paquette, at para. 33, citing Schumacher v. Toronto-Dominion Bank (1997), 1997 CanLII 12329 (ON SC), 147 D.L.R. (4th) 128 (Ont. C.J. (Gen. Div.)), at p. 184; see also para. 47; Lin, at para. 89). Indeed, the trial judge and the majority of the Court of Appeal agreed that an “active employment” requirement is not sufficient to limit an employee’s damages (trial reasons, at para. 398; C.A. reasons, at para. 66).

[66] Similarly, where a clause purports to remove an employee’s common law right to damages upon termination “with or without cause”, such as clause 2.03, this language will not suffice. Here, Mr. Matthews suffered an unlawful termination since he was constructively dismissed without notice. As this Court held in Bauer v. Bank of Montreal, 1980 CanLII 12 (SCC), [1980] 2 S.C.R. 102, at p. 108, exclusion clauses “must clearly cover the exact circumstances which have arisen”. So, in Mr. Matthews’ case, the trial judge properly recognized that “[t]ermination without cause does not imply termination without notice” (para. 399; see also Veer v. Dover Corp. (Canada) Ltd. (1999), 1999 CanLII 3008 (ON CA), 120 O.A.C. 394, at para. 14; Lin, at para. 91). Yet, it bears repeating that, for the purpose of calculating wrongful dismissal damages, the employment contract is not treated as “terminated” until after the reasonable notice period expires. So, even if the clause had expressly referred to an unlawful termination, in my view, this too would not unambiguously alter the employee’s common law entitlement.