A Win for Employers: Ontario Court Upholds Termination Clause

Employers can protect themselves from significant liability by limiting termination entitlements to ESA minimums—provided the language is well-drafted and legally compliant

The Ontario Superior Court of Justice recently issued a notable decision in Bertsch v. Datastealth Inc., 2024 ONSC 5593**, reaffirming that termination clauses in employment contracts limiting entitlements to the minimum standards under the Employment Standards Act, 2000 (ESA) are enforceable when properly drafted. This ruling provides a valuable precedent for employers looking to manage liability and clarify termination terms with employees.

The Case in Brief

In this case, an employee who had worked for Datastealth Inc. for 8.5 months was terminated without cause. The employee was provided with one week of termination pay in compliance with the ESA, along with an additional three weeks’ pay as a gratuitous gesture.

However, the employee launched a lawsuit, claiming 12 months of common law notice and arguing that the termination clause in his contract was unenforceable due to ambiguity.

The termination clause in question explicitly limited the employee’s entitlements upon termination to the ESA minimums, stating:

“If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the ESA and its Regulations… Compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment, or pay in lieu thereof.”

The employee alleged that the clause breached the ESA as it failed to clearly outline what his entitlements would be if the termination was for ““wilful misconduct, disobedience, or wilful neglect of duty”. The employer argued that the clause was unambiguous and complied fully with the ESA, making it enforceable. The court was tasked with determining the enforceability of the clause and whether the employee’s claim could proceed.

The Court’s Decision on Limiting Termination Entitlements

The Ontario Superior Court of Justice ruled in favour of the employer, upholding the termination clause. The court’s key findings were:

Clear and Unambiguous Wording: The court determined that the termination clause was clearly worded and explicitly excluded common law notice entitlements while adhering to the ESA minimums. The language left no room for misinterpretation.
Compliance with the ESA: The court found no evidence that the termination clause contravened the ESA or its regulations. It affirmed that the clause met all statutory requirements and did not create an “illegal outcome.”
Dismissal of the Employee’s Claim: Based on the enforceability of the termination clause, the court dismissed the employee’s wrongful dismissal claim without leave to amend, closing the door on further litigation.

Key Takeaways for Employers

This decision highlights the importance of precise drafting when it comes to termination clauses in employment contracts. Here are the lessons employers can take from this ruling:

Clarity is Critical: Termination clauses must be clear, unambiguous, and leave no room for alternative interpretations that could result in non-compliance with the ESA.
Compliance with Statutory Minimums: Clauses that limit entitlements to ESA minimums must strictly adhere to the requirements outlined in the ESA and its regulations. Any deviation could render the clause unenforceable.
Regular Review of Contracts: Employment laws evolve, and termination clauses that were enforceable in the past may no longer offer the intended protections. Employers should regularly review and update their contracts to align with current Employment laws.
Use of Legal Expertise: Drafting and enforcing termination clauses is a nuanced area of Employment Law. Employers should seek professional legal guidance from an experienced Employment Lawyer to ensure their contracts are enforceable and reduce exposure to costly litigation and potential liability.

Why This Matters

This ruling provides much-needed clarity for employers in Ontario. It reaffirms that employers can protect themselves from significant liability by limiting termination entitlements to ESA minimums—provided the language is well-drafted and legally compliant. The court’s decision underscores the importance of transparency and precision in employment agreements, offering employers a strong defence against wrongful dismissal claims.

How Minken Employment Lawyers (Est. 1990) Can Help

Termination clauses are a critical part of any employment contract, and getting them right can save your business from costly disputes. At Minken Employment Lawyers (Est. 1990), we specialize in drafting and reviewing employment agreements to ensure compliance with the law and alignment with your business needs.

If you’re looking to protect your interests, would like us to review your current employment contract, or you are in a wrongful dismissal dispute, contact us today at 905-477-7011 or email us at [email protected]. Our experienced team is here to help.

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Please note that this article is for informational purposes only and does not constitute legal advice.

** 2024 ONSC 5593 (as of the time of publication, this decision is not yet on CanLII)