Termination Clause Valid Despite Its Silence on Statutory Entitlements, BC Court Rules
In a positive decision for employers, the Supreme Court of British Columbia ("BCSC") recently upheld a contractual termination clause, despite the argument that it violated the statutory requirements that apply to "group terminations" .
In Forbes v. Glenmore Printing Ltd. ["Forbes" ], the BCSC refused to award Ross Forbes common law wrongful dismissal damages, even though the termination clause in his employment contract only referenced his statutory entitlements upon an individual termination and not the greater statutory entitlements that would apply if he was dismissed as part of a group termination.
Forbes is an interesting decision for employers because it differs from the general trend towards courts finding termination clauses unenforceable for increasingly technical reasons. For example, in Rutledge v. Canaan Construction ["Rutledge" ] the Ontario Superior Court of Justice held that a termination clause was unenforceable because it could potentially violate Ontario's Employment Standards Act, 2000 (the "ESA") in two ways. First, although the employee was a construction worker exempt from receiving notice of termination under the ESA, their role could have changed in the future to a non-construction role that was not exempt, in which case the termination clause in his employment contract would violate the ESA. Second, although the employee was not entitled to severance pay under the ESA due to the company's size, they could become entitled to severance pay in the future if the employer grew larger, in which case the clause would violate the ESA by not providing severance pay. The Rutledge decision is one of many recent court rulings that are part of a growing trend towards scrutinizing termination clauses, which is why the Forbes decision is so significant.
Forbes worked as a senior pressman for Glenmore Printing Ltd. ("Glenmore") in British Columbia for over six years until he was laid off in December 2020. Forbes subsequently sued Glenmore for wrongful dismissal damages. The key issue was whether the termination clause in Forbes' employment contract was enforceable, as both parties agreed that Forbes would be entitled to common law reasonable notice if the clause was unenforceable.
The termination clause stipulated that Glenmore could terminate Forbes by providing him with one week of notice or pay in lieu of notice for each year of service, up to a maximum of eight weeks. Notably, this mirrors the minimum statutory entitlements for individual terminations of employment under British Columbia's Employment Standards Act (the "Act"), as set out in s. 63 of the Act. However, under s. 64 of the Act, employees are entitled to up to 16 additional weeks of notice if they are dismissed as part of a "group termination" involving 50 or more employees.
Although Forbes was not part of a group termination, his lawyer argued that the termination clause in his employment agreement was unenforceable because it could violate the Act if he were part of a group termination.
The Court's Decision
Ultimately, the BCSC held that the termination clause in Forbes' contract was enforceable because it did not contain any language explicitly contracting out of the group termination requirements under s. 64 of the Act.
In reaching this conclusion, the court held that a termination clause which does not comply with the minimum requirements under employment standards legislation is unenforceable, even where the clause would only potentially violate these requirements in the future. However, the court also held that a termination clause only needs to stipulate the minimum notice required for individual terminations, and not the notice required for group terminations, in order to avoid payment of common law wrongful dismissal damages. This is because the group termination requirements are distinct statutory entitlements that are not intended to compensate dismissed employees for the wages or benefits that they would have earned during the notice period, unlike the individual termination entitlements under the Act. Moreover, the court held that a termination clause being silent on what an employee would receive in a group termination is not necessarily an attempt to contract out of the statutory group termination notice requirements, depending on the language used.
Applying the law to the facts, the court held that the termination clause in Forbes' employment agreement was enforceable. In the result, the court held that Forbes was not entitled to common law reasonable notice and dismissed his wrongful dismissal action against Glenmore.
The Bottom Line
Forbes is good news for employers because it demonstrates that there are limits to how far the courts will go in terms of invalidating termination clauses for technical reasons. However, it is important to note that Forbes does not necessarily mean that termination clauses which do not provide for statutory group termination entitlements will be enforceable in other Canadian jurisdictions. This is because there are significant differences in the language of employment standards legislation across jurisdictions. Accordingly, employers should ensure that their employment agreements contain termination clauses that have been properly tailored to the jurisdictions in which they operate, and seek specific legal advice regarding the enforceability of a termination clause when faced with a potential wrongful dismissal action.
If you have any questions regarding the enforceability of your current employment contracts or need assistance with preparing contracts with enforceable termination clauses, please do not hesitate to contact us for expert legal advice and guidance.