Ontario Court of Appeal upholds enforceability of ESA-only termination provision and clarifies proper interpretation of “clear and unambiguous”

A recent decision from the Ontario Court of Appeal, Bertsch v Datastealth Inc[1], provides important guidance on the enforceability of termination clauses in employment agreements which limit employee entitlements to the statutory minimums under the Ontario Employment Standards Act, 2000 (ESA). The Court’s ruling clarifies what “clear and unambiguous” means in the context of interpreting termination provisions:

… the issue is not whether an ordinary person might arrive at an incorrect interpretation of the termination provisions of the employment agreement, but how the agreement can be reasonably interpreted…[2]

Background: The dispute over termination entitlements

The case involved a senior executive (vice-president) whose employment was terminated without cause after 8.5 months of service. The employment agreement contained a termination clause stipulating that, upon termination of employment “with or without cause,” the employee would receive “only the minimum payments and entitlements, if any,” required by the ESA, “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.” The agreement also included a “failsafe” provision ensuring that, in any event, the employee would not receive less than their minimum entitlements under the ESA.

Upon dismissal, the employee received four weeks’ pay in lieu of notice. He subsequently brought a claim for common law wrongful dismissal damages, arguing that the termination clause was void and unenforceable because it allegedly violated the ESA.

On the employer’s motion for the interpretation of the termination provision, the Ontario Superior Court of Justice found that there was “no reasonable interpretation [of the relevant provisions] which would be contrary to the minimum requirements of the ESA and regulations” and that the termination provision was “clear and unambiguous.”

Analysis from the Court of Appeal: Clarity and compliance with the ESA

On appeal, the employee argued that “while a person trained in the law might find the clause unambiguous, an ordinary person might understand [it], incorrectly.” Citing from a prior Court of Appeal decision, the Court in this case noted that a “finding of ambiguity, however, means ‘something more than the mere existence of competing interpretations’.”

The Court of Appeal upheld the lower court’s decision, finding that the termination clause was clear, unambiguous, and compliant with the ESA. The Court rejected the argument that the clause was ambiguous or that it could be interpreted to allow termination without notice for conduct less serious than “wilful misconduct” as defined by the ESA Regulation.[3]

The Court emphasized that the proper test is whether the agreement, when reasonably interpreted, complies with the ESA’s minimum standards. The presence of a “failsafe” provision further reinforced the employer’s commitment to meeting statutory minimums, but the Court found it unnecessary in this case because the main termination clause was already sufficiently clear.

The Court was also clear that “this is not a case where the agreement uses legal terms or language that might be confusing to a person not versed in the law” and that a reading of the termination provision that would allow for “for termination for cause for any reason without payment” “would require the employee to ignore the words ‘with or without cause’.”

Key takeaways: Implications for employment agreements

This Ontario Court of Appeal decision provides welcome clarity for employers seeking to manage termination risks through written employment contracts. The decision reinforces the principle that employers can limit termination entitlements to ESA minimums, provided the language of the employment agreement is clear, unambiguous, and does not contravene the ESA. The Court also clarified that the possibility of an employee misinterpreting the clause does not render it ambiguous if, on an objective and reasonable reading, the clause is clear.

For employers, this case underscores the importance of carefully drafting termination provisions to ensure enforceability.

Conclusion

Clear ESA-compliant termination clauses ought to be enforced, limiting liability to statutory minimum entitlements and reducing the risk of costly wrongful dismissal claims. Employers should review employment agreements in light of this decision to ensure their rights and obligations are clearly set out, in a simple and unambiguous way.

If employers need assistance with the review of employment agreements, a member of our Employment, Labour & Equalities Group would be happy to assist you.

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