Introduction
Looking back almost five years after the Ontario Court of Appeal’s seminal decision in Waksdale v Swegon, many employers may feel that drafting an enforceable termination clause is an impossible feat. A long line of authorities since Waksdale have demonstrated a general reluctance of the Ontario courts to uphold employment contracts that seek to displace the common law presumption of reasonable notice. Termination clauses are closely scrutinized. If they are found to undercut the Ontario Employment Standards Act, 2000 (ESA), they are struck down as unenforceable against the employee.
However, hope is not lost for employers. The Ontario Superior Court’s 2024 decision in Bertsch v. Datastealth Inc. demonstrates that it remains possible to draft an enforceable termination clause. In Bertsch,the Court held that a termination clause which sought to limit the employee’s termination entitlements to their statutory minimum requirements under the ESA was valid and enforceable. The Court consequently dismissed the employee’s claim for common law notice.
Bertsch is also an important decision from a procedural point of view. Bertsch was dispensed with by way of a motion under Rule 21 of the Ontario Rules of Civil Procedure, which permits a party to request a determination of a point of law before trial. Using Rule 21, the employer requested that the Court first rule on the enforceability of the termination provision before the need to proceed to trial, a timely and cost-efficient method which ended up resolving the entire claim.
Case analysis
Mr. Bertsch was employed by Datastealth for approximately 8.5 months before his employment was terminated without cause. While Datastealth provided Mr. Bertsch with a termination package which exceeded his minimum entitlements under the ESA, Mr. Bertsch brought a wrongful dismissal action seeking damages for reasonable notice at common law. Mr. Bertsch argued that the termination clause in his contract was vague and ambiguous and failed to properly reference Ontario’s statutory standard for cause. In response, Datastealth brought a Rule 21 motion to determine the interpretation of the relevant contract provisions and to dismiss the claim as disclosing no tenable cause of action.
The termination clause stated the following:
5. Termination of Employment by the Company: 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,…including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.
You understand and agree that 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. You further understand and agree that this provision shall apply to you throughout your employment with the Company, regardless of its duration or any changes to your position or compensation.”
11.(a) If any of your entitlements under this Agreement are, or could be, less than your minimum entitlements owning under the [ESA] …you shall instead receive your minimum entitlements under the [ESA]…
The Court found in favour of Datastealth. The Court held that the clause did not result in any breach of the ESA or its regulations, nor was there any reasonable alternative interpretation of the clause. Rather, the Court found that there was a clear intention to comply with the ESA. The Court went on to say that the inherent power imbalance in employer-employee relationships (which is often cited as support for why employees should not be bound by their termination clause) will not invalidate an enforceable termination clause where the proper meaning of the clause is in fact clear. Lastly, the Court noted that the failsafe clause in the contract reaffirmed the intention of the employer to comply with the ESA and reinforced the termination provision’s enforceability. Of note, not all courts have had similar views about failsafe clauses.
Takeaways
Bertsch is a welcome decision for employers, confirming that termination clauses will still be enforced in appropriate cases. Bertsch reaffirms the long-standing principle that employers are permitted to contract out of the common law and limit an employee’s entitlements at termination to the minimum requirements set out in the ESA.
Bertsch is also an important procedural authority. Parties can request that the Court first rule on the enforceability of a termination provision. If the court determines that the clause is enforceable, it can strike out or dismiss the claim as disclosing no tenable cause of action. As a result, parties to a wrongful dismissal matter can isolate the issue of the interpretation of the contract and have it determined before having to proceed through the various stages of litigation to trial, thereby dispensing with wrongful dismissal actions in a timely and cost-efficient manner.
If you have any questions about how this article and the topics discussed, please contact the authors Maggie Sullivan or Catherine Coulter or a member of our Employment and Labour group.
