WRONGFUL DISMISSAL AND THE EMPLOYMENT CONTRACT

Article No. 9

WRONGFUL DISMISSAL AND THE EMPLOYMENT CONTRACT

An employer’s obligation to provide reasonable notice upon termination or wrongful dismissal damages is by no means absolute. There will certainly be no such obligation where the employee is terminated for cause. The concept of “just cause” and employee’s conduct which can give rise to just cause for termination will be treated in future articles. Today, however, we will take a look at the increasingly common situation where an employer requires that an employee sign an employment agreement setting out the terms and conditions of the employment relationship. Such agreements will typically include termination provisions which attempt to restrict the employee’s right to notice (wrongful dismissal damages) in the event of termination without cause.  In monetary terms, the contracted entitlement to notice will likely be significantly less than “reasonable notice” as prescribed at common law. Put differently, it is rare that an employment contract will provide more generous terms than the common law right to reasonable notice/wrongful dismissal damages.

If the termination provision of the agreement is drafted carefully by the employer, it may be difficult for a terminated employee to obtain reasonable notice/wrongful dismissal damages. The Courts, however, have shown a reluctance to enforce such agreements unless the following conditions are met:

  1. The termination provisions of the agreement must be clear and unambiguous.   The Courts have determined that if an employee is going to be asked to sign away their right to reasonable notice, the employer must make it clear to the employee what it is seeking. Under these circumstances, terms which are vague or open to more than one interpretation will likely not be enforced against the employee and entitlement to wrongful dismissal damages will prevail. Where the employee does not understand the agreement he or she is being asked to sign and asks for the opportunity to obtain legal advice, an employer’s refusal to allow the employee to see a lawyer before signing the agreement may result in such an agreement not being enforced/entitlement to wrongful dismissal damages.
  • The termination provision of the agreement must also comply with the notice and severance provisions contained in applicable Employment Standards legislation. Termination provisions which fail to meet minimum Employment Standards entitlements will not be enforceable. For example, an employee terminated without cause after three years of service (and assuming they are regulated by the Ontario Employment Standards Act)is entitled to three weeksnotice of termination or the equivalent in pay. Where the agreement on the other hand permits the employer to terminate an employee without notice or to provide less than three weeks notice, the termination provisions are invalid and the employee will be able to pursue his/her common law right to reasonable notice/wrongful dismissal.
  • Where an employee accepts employment on terms which do not limit his right to notice and commences employment only to subsequently be given a contract which limits those rights, the notice provisions of the agreement may only be enforceable where something passes from the employer in exchange for the right the employee has given up. Where on the other hand, the terms and conditions of the employment contract otherwise remain the same, the new agreement will not likely limit the employee’s right to reasonable notice/wrongful dismissal.
  • Where subsequent to signing an agreement limiting one’s right to notice the employee’s duties and remuneration are substantially increased, the Courts may conclude that the termination provisions of the agreement, while enforceable with respect to the position occupied by the employee at the time the agreement was entered into, may not be applicable with respect to the employee’s new position.

Where the employment agreement is silent on the issue of notice, the Courts have found an implied term providing for an employee’s right to reasonable notice/wrongful dismissal damages in the event of termination.

Employees are best advised to seek the advice of an employment lawyer before executing an employment contract. It is appropriate to know what one is getting into before signing on the dotted line. An employee who has signed a contract which includes a term which seeks to limit their right to notice or wrongful dismissal damages will need to consult an employment lawyer to determine if there are any grounds upon which such term can be set aside and preserve the right to wrongful dismissal damages. Finding a basis for contesting the agreement can make the difference between Employment Standards minimum entitlements and potentially greater damages for wrongful dismissal. To be clear, the law on the enforceability of termination provisions is not precise or clear. It is best to seek the advice of an employment lawyer before you sign any agreement regardless of whether it is before or after you start employment. Furthermore, one should always seek the advice of an employment lawyer once terminated and before a Release is signed.