When Failsafe Language Fails: The Ontario Court of Appeal on the Enforceability of Termination Provisions

March 03, 2020 − by Karina Pylypczuk − in Employment Standards − Comments Off on When Failsafe Language Fails: The Ontario Court of Appeal on the Enforceability of Termination Provisions

On August 30, 2019, the Ontario Court of Appeal dismissed the
employer’s appeal in Andros v. Colliers
Macaulay Nicolls Inc.[1]
The Court of Appeal’s decision affirmed a Motion Judge’s finding that a
termination provision which provided for severance entitlements below the Employment Standards Act, 2000 (the
“ESA”) minimums was not saved by the “failsafe” language included in the
termination provision.

This decision adds to a long line of decisions on the
enforceability of termination provisions.


The employer in this case, Colliers Macaulay Nicolls Inc.,
hired the Plaintiff, Mr. Demetri Andros, pursuant to the terms of a written
employment agreement containing the following termination provision:

Term of Employment

Company may terminate the employment of the Managing Director by providing the
Managing Director the greater
of the Managing Director’s entitlement pursuant to the Ontario Employment
Standards Act or, at the
Company’s sole discretion, either of the following:

  1. Two (2) months working notice, in which case
    the Managing Director will continue to perform all of his duties and his
    compensation and benefits will remain unchanged during the working notice
  2. Payment in lieu of notice in the amount
    equivalent of two (2) months Base Salary.
    [Emphasis added]

Upon terminating Mr. Andros’ employment without cause, the
company provided Mr. Andros with all of his ESA entitlements, but nothing more.
Mr. Andros commenced an action for wrongful dismissal alleging, among other
things, that the termination provision in the employment contract was unenforceable.

Mr. Andros argued that the termination provision was
unenforceable on the basis that it attempted to contract out of the
requirements of the ESA by failing to provide severance pay under 4(a) and
failing to provide for severance pay or benefits under 4(b).

The parties agreed to proceed before a Motion Judge by way of
summary judgement motion.

The Motion Judge’s

At the summary judgement motion, the company argued that the
first part of the clause, which specifically referred to the provision of ESA
entitlements also applied to parts 4(a) and 4(b) by virtue of the fact that the
whole clause insisted on the “greater” of the entitlements being provided.

The Motion Judge rejected this argument, finding that neither
4(a) nor 4(b) clearly provided ESA entitlements. At best, 4(a) and 4(b) were
ambiguous as to the inclusion of ESA entitlements. The Motion Judge then noted
that where a termination provision is unclear or ambiguous, courts should
prefer the interpretation that favours the employee. The Motion Judge adopted
the interpretation of 4(a) and 4(b) in which Mr. Andros was deprived of his ESA
entitlements and found the entire provision unenforceable.

In the result, Mr. Andros was awarded a reasonable notice
period of eight months.

The Ontario Court
of Appeal’s Decision

On appeal, the company relied on the Court of Appeal’s 2018 finding
in Amberer v. IBM Canada Ltd that
that the failsafe language effectively modified the rest of the termination
provision to read it up to comply with the ESA.[2] The
failsafe language at the end of the provision stated,  

the event that the applicable provincial employment standard legislation
provides you with superior entitlements upon termination of your 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

The Court of Appeal rejected the company’s appeal of the
award in favour of Mr. Andros. In response to the company’s reliance on Amberer, the Court of Appeal found that
the termination provision in Mr. Andros’ employment contract was fundamentally
different from the termination provision in Amberer.
In the case of Mr. Andros’ employment contract, the reference to ESA
entitlements was “stranded in the first clause” by virtue of the disjunctive
“or” and as such, did not serve as failsafe language to ensure that ESA
entitlements would be included as part of the entitlements set out parts 4(a)
and 4(b).[4] 

Takeaway for

Although the Ontario Court of Appeal did distinguish this
decision from its decision in Amberer v.
IBM Canada Ltd.,
it did not overturn the earlier decision. As such,
employers should follow the guidance provided in Amberer v. IBM Canada Ltd., and ensure that failsafe language
applies to the entire termination provision rather than providing a “greater
of” or “either or” entitlement.  

[1] Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679 [Andros].

[2] Amberer v. IBM Canada
2018 ONCA 571
at para. 54 [Amberer].

[3] Ibid at para. 6.

[4] Andros at para. 30.

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