Termination Clauses: “the greater of x or y”, how the disjunctive nature of your termination clause could render it null and void!
February 24, 2020
Here’s the take away up front: have your employment contracts reviewed at least annually. Over the last few years, in particular, the Ontario Court of Appeal has been weighing in on termination clauses in employment contracts.
Andros v Colliers Macaulay Nicolls Inc. is another example of the Court reviewing an issue with respect to the enforceability of a termination provision in a contract. This time the issue turned in part on a common phrase used in termination clauses, “the greater of” and the use of “or” in differentiating between two options. The clause at issue read as follows:
The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director’s entitlement pursuant to the Ontario Employment Standards Act or, at the Company’s sole discretion, either of the following:
a. Two (2) months working notice, in which case the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period.
b. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary. [Emphasis added.]
Under the Employment Standards Act, 2000 (“ESA“), an employee is entitled to the applicable minimum amount of notice or pay in lieu of notice, severance, if applicable, and continuation of benefits during the notice period upon termination of her employment without cause.
The Court held that the termination clause was null and void because it attempted to contract out of the minimum standards under the ESA, contrary to subsection 5(1). It was noted that the exception to subsection 5(1) is found under 5(2), which permits the parties to contract for a greater benefit than what is provided for under the ESA. As established by previous courts, this Court held that the entire termination clause is void if it purports to contract out of the ESA without clearly substituting a greater benefit in its place.
The Court found that if clause 4(a) applied, it did not provide for severance and, if clause 4(b) applied, it did not provide for benefits and severance, and therefore the ESA had been contravened.
The employer argued that sections 4(a) and 4(b) of the termination provision were cloaked by the first clause which provides for the employees full entitlements under the ESA. The Court disagreed, finding as the motion judge did that the use of the word “or” separated the first part of the termination clause from options 4(a) and 4(b). The Court found that the use of “or” marked the disjunctive nature of the contents of the termination clause, noting that the use of “the greater of” forces a choice between the first half of the termination clause (ESA minimums) or the second half (options 4(a) and 4(b)). As such, the Court upheld the motion judge’s finding that the disjunctive nature of the clause did not cast the ESA entitlements upon clauses 4(a) and 4(b).
Given the disjunctive nature of the termination clause, the Court held that the motion judge was correct to consider the meaning and enforceability of clauses 4(a) and 4(b) on their own. The Court upheld that “[t]he parties had contracted that the respondent was entitled to the “greater of” the ESA entitlements under the first clause or the entitlements under 4(a) or 4(b), not the greater of the first clause or the latter clauses, combined with elements of the first clause.”
This case is a reminder that the law is in flux and it is prudent to have your contracts reviewed to ensure that provisions are revised and drafted carefully to ensure their enforceability in light of the changes in the law.
Employers should consult legal counsel prior to presenting an employee with an employment contract, especially where it contains a termination provision of any kind.
Andros v. Colliers Macaulay Nicolls Inc. 2019 ONCA 679 (C.A.)
*Philip Graham practices Employment Law, Litigation and Privacy and Compliance, subscribe to the Privacy Law blog here.