Appropriate notice and the employment contract

APPROPRIATE NOTICE AND THE EMPLOYMENT CONTRACT

Except where there is a contract with a specific term to the contrary, an employee is entitled to reasonable notice of his or her termination of employment, subject to an employer being able to prove cause for termination. The main factors a Court uses in determining appropriate notice are the employee’s age, position, years of service and availability of alternate employment taking into consideration his or her education.

An Employee and Employer are free to enter into a contract setting out a pre-arranged period of notice upon termination. Such term, if enforceable, will replace the implied right to reasonable notice. 

A common problem with employment contracts with terms which purport to contract out of the implied term to reasonable notice is that the “negotiated” term is usually one-sided and in favour of the Employer. This is likely due to the inherent inequality of bargaining power between an Employee and Employer. Put differently, a prospective Employee’s need for work/pay is usually more important to that person than the adequacy of a notice period at an uncertain date. This further presumes that the Employee has read or understood the relevant provision. An “Employment Contract” unlike most commercial contracts is not normally entered into between parties of equal strength, the Employer having a distinct advantage. Therefore, it is not a surprise that most contracts that speak to the issue of notice will limit an Employee’s entitlement to the Employment Standards Act minimums or marginally more than such minimum payments. It goes without saying that common law entitlements are, almost without exception, greater than Employment Standards payments. In such circumstances, and if the termination provision is found to be enforceable, a terminated employee would be significantly worse off by having entered into such an agreement. 

Courts have acknowledged this “inequality in bargaining power” and therefore will only enforce termination provisions where the Employer is able to clearly and unequivocally show that the presumption to “reasonable notice” has been rebutted. As such, any ambiguity in the term will likely lead to a Court providing the Employee with reasonable notice as opposed to the amount set out in the contract. Furthermore, a Court may decline to enforce a termination provision where the term is unconscionable or the contract is signed under duress. Where the termination provision does not meet minimum payments pursuant to the Employment Standards Act, the provision will likely not be enforceable. Courts have also found that where the notice provision is entered into after commencement of employment and without proper consideration, the employer may not be able to rely on the contracted notice period.

There have been literally hundreds of cases over the last 10 years which deal predominantly with the interpretation of employment contracts, and specifically whether the termination provision is enforceable. These decisions focus almost entirely on the specific wording of the contract provision, and for the most part, Courts will put the maker of the contract (the Employer) to the strict proof that the provision is enforceable. The take away for the Employee – (1) don’t sign any contract of employment before you understand its terms. Meet with an employment lawyer who can, in a short period of time, explain the meaning of the document; and (2) do not assume that if you have signed a contract, that you are necessarily restricted on entitlements upon termination. I am not saying that you should sign any contract put in front of you, but if you have signed a contract, you should get an opinion from an employment lawyer as to whether the termination provision is enforceable. This can literally mean the difference of tens of thousands of dollars in wrongful dismissal damages.

In all the circumstances, it is extremely important that an employee obtain legal advice before a contract is entered into during the course of employment or upon termination.  If one has already entered into a contract and there are provisions in that contract which are prejudicial to their interests, it is also in one’s interest to obtain legal advice from an employment lawyer as to the enforceability of that term.