Termination Clause Waiving Past Service Void as per ESA and a Savings Clause Does Not Help

  • 27 novembre 2019
  • Barry B. Fisher LL.B.

In Groves v UTS Consultants (2019 ONSC 5605), the Plaintiff sold his business by way of a share transaction, resigned from that business and then entered into an employment agreement with the purchasers. Prior to the transaction, the plaintiff had been an employee for 22 years. He was terminated three years after the purchase.

The termination clause in the new employment agreement read as follows:

[16] … This agreement may be terminated in the following manner in the specified circumstances:

b) By the Company at any time for cause without notice or pay in lieu;

c) By the Company at any time without cause provided that the Company provides you with notice in writing or pay in lieu of notice (as salary continuation) or some combination thereof equal to four (4) weeks base salary for each year of service that you have with the Company calculated from the date of this letter (and, for greater certainty, excluding any period of service you had with the Company prior to the date of this letter) with a guaranteed minimum notice or pay in lieu of notice equal to three (3) months base salary; provided that the maximum notice period or pay in lieu of notice that you will receive shall in no circumstances exceed twelve (12) months. Notwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the Employment Standard Act (Ontario). In addition, the severance package will also include continuation of medical and dental benefits during the severance period. Any variable pay owing to you will be prorated for the year’s service and paid at the time of termination. For greater certainty, you agree that for purposes of calculating any entitlement which you may have arising from the termination, without cause, of your employment with the Company, any prior service with the Company is excluded and you hereby waive and release any prior service entitlements.

The validity of this clause was successfully attacked on the following grounds:

1.     As the clause purported to not count his first 22 years of service, it offended Section 9 (1) of the ESA which deems employment to be continuous notwithstanding a sale of the employer.

2.     The Plaintiff signed a resignation at the time of the purchase. The Court held that this was intended to cover only his status as a director and officer, not as an employee. Moreover, as severance pay covers even non-continuous service (see Section 65(2)), the clause is illegal.

3.     By basing the notice only on base pay and not total compensation, it breached the ESA.