Be Wary When Signing Termination Clauses

Duty of Honesty in Employment Contracts | peace of mind contracts

Termination clauses are one of the most litigated sections of employment contracts and could make the whole agreement void if not written precisely, says Toronto employment lawyer Bram Lecker.”There’s a variety of things that will blow up a contract unless it’s perfectly written — and I mean perfectly,” says Lecker, principal of Lecker & Associates.

“We often encounter termination clauses in agreements and our primary job is to find a way out of them,” he tells AdvocateDaily.com. “Eighty per cent of our work is on behalf of employees.”

Lecker describes it as “an ongoing war” between employees’ and employers’ rights. He says employers should be able to protect their business, but employees have the right — especially in cases of dismissals without cause — to ensure income protection and certainty in moving forward.

Lecker says Canadian labour jurisprudence since the early 1960s has, for the most part, developed “a very progressive regime” of judge-made law. He says people fired without just cause are given protections on two levels — with the minimums set by provincial or federal employment law and precedents dealing with wrongful dismissal set by the courts.

The minimum standards set by employment standards legislation — including severance based on length of service — can’t be contracted away, Lecker says.

“Every collective agreement and employment relationship must include those minimums,” he says.

In the past six decades, judges have added a second level of protection known as wrongful dismissal, says Lecker, where awards are based on length of service of the plaintiff, their age and the position they held.

“That’s where lawyers usually get involved,” he says. “Every employer will pay the minimum because they don’t have a choice, but it’s the additional protections that lead to the greatest debate.”

Lecker says the number of awards for wrongful dismissals has “ballooned.”

He says those protections conflict with the American corporate practice of at-will termination, where employees are dismissed without severance.

“There’s been a constant war,” Lecker says. “Canadian companies have hopped on that train and are trying not to get hit with the extra protection, and the way they’re doing it is through employment contracts.”

He says the documents attempt to limit the rights of employees to the first level of protection offered by employment standards legislation.

“The contract should be provided to an employee before they start, and they should be given an opportunity to get independent legal advice before agreeing to it. It should say that in the contract. The job description and benefits should be very clear, and most importantly, its language must pay deference to the Employment Standards Act [ESA],” Lecker says.

Employers can’t deviate from provincial legislation and “therein lies the battleground,” he says.

The contract will often try to limit employees to that offered by the ESA and exclude the second level of protections, says Lecker.

“As a matter of fact, most will try to exclude it in an indirect way,” he says.

“The language will be very uncertain and say, ‘If you’re fired, all I’m giving you is what is required by the Employment Standards Act, that’s it.’ The problem is that the law respects clarity because if it’s ambiguous, it goes against the person writing the contract. The employer gives a form contract to sign, but if it’s ambiguous, it goes out the window,” says Lecker.

Many international-based firms, particularly American ones, don’t like to continue paying benefits after termination “and that’s where they get caught very often because if the legislation says the minimum is eight weeks, you have to provide benefits for eight weeks,” he says. “Everything has to continue.”

The Supreme Court of Canada has ruled that if employment contracts don’t adhere to ESA laws, they’re void, he says.

“The law has changed in the past five years, and increasingly the courts have said companies have to play by the rules,” Lecker says. The contracts have to be “crystal clear” and acknowledge the employment laws of the province.

“But most of these contracts were drafted five, 10 years ago, when the person started to work for the company,” he says. “The fight is over whether these contracts comply with provincial employment acts, pay deference to them, and if they’re written with clarity. Because if they’re not, they get thrown out.”

Lecker says employment law vacillates between employer and employee and “it’s a real battleground right now.”

He says if employees are offered a contract after they begin work, it’s void.

“It’s known as a failure of consideration. That happens very often,” Lecker says.

“Similarly, if an employee was working for a company that was taken over, and then offered a contract, that document is void if they force the employee to sign — unless they offer a signing bonus,” he says. “If they offer more money or a bonus, then the employee is bound to it.”

Contracts are also weakened if an employee moved up through a firm but is still tied to the original contract outlining the previous position, explains Lecker.

“You can’t use the contract from the time the employee was in one position to govern dismissal when he’s is in a higher position,” he says.

“There are about a dozen different ways you can get out of contracts,” Lecker says. “In the last couple of years, we’ve noticed two trends. The first is that we see more contracts, and they’re getting tighter and better written.”

The other trend involves awards based on trying to determine how long it would take a plaintiff to find another job, based on age, type of skills and anything else that would create a special circumstance, he says.

“To achieve that end, courts are increasingly looking at individual vocational assessments and job market data,” Lecker says. 

The bottom line, he says, is that if an employee is being asked to sign a contract, they should have it reviewed by a lawyer.

Read other articles published by Advocate Daily with Bram Lecker