IBM appeal case reboots the importance of parties’ intentions for termination provisions

26 November 2018

Termination provisions have received much judicial attention, leaving employment lawyers seeking clarity about the principles to rely upon when interpreting these provisions.  This much-needed guidance was provided by the Ontario Court of Appeal's recent decision in Amberber v. IBM, 2018 ONCA 571, as the Court confirmed that the principle of providing the more favourable contractual interpretation to the non-drafting party, only applies where there is genuine ambiguity within the provision. 



Background:

The employee in this case was terminated, without cause, by IBM.  The employee claimed pay in lieu of notice pursuant to the common law, whereas IBM argued that the employee's claim for common law notice was ousted by the termination terms of the employment agreement.  This provision was interpreted by the motion judge as if it consisted of the following three parts:

       Part 1: Options Provision

If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary. 

      Part 2: Inclusive Payment Provision

This payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law.  Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation. 

       Part 3: Failsafe Provision

In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment ("statutory entitlements") than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.

According to the motions judge, the termination provision was ambiguous because it was unclear whether there was an intention to rebut the common law reasonable notice requirements.  As a result, the motion judge took the position that any ambiguity must be resolved in favour of the employee.

In reviewing the lower court's decision, the Court of Appeal overturned the motion judge's decision and found that the termination provision was enforceable.  The Court found that "the fundamental error" made by the motions judge was failing to interpret the provision as a whole in order to appreciate its meaning.  When read as a whole, the Court found that the provision established a "formula" for calculating the amounts owing to a terminated employee, which included any entitlements under the employment standards legislation and the common law.  The failsafe provision acted to ensure the employee would be provided the employment standards entitlement in the event it was superior. 

Takeaways:

The Court of Appeal has provided clarity regarding the interpretation of termination provisions, including:

  1. Termination clauses must be interpreted as a whole and not read or interpreted as individual parts;
  2. The contra proferentem rule, which provides that, in the case of ambiguity, the more favourable interpretation should be given to the non-drafting party, only applies where there is genuine ambiguity within the provision.  This signals a return to the principles of focusing on the intention of the parties to the employment agreement (Oudin v. Le Centre Francaphone de Toronto, 2015 ONSC 6494 (CanLII); aff'd 2016 ONCA 514 (CanLII)). 
  3. The contra proferentem rule cannot be misused to find the least favourable interpretation for the employee as a means of finding the termination provision unenforceable. 
  4. No specific words must be used within termination provisions to oust common law damages so long as the intention of the parties to do so is clear. 

For all questions related to employer-side employment law, the Gowling WLG Employment, Labour & Equities Group would be pleased to assist.  To find out more about our Group and how to contact a specific lawyer, click here.


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