What Is The Purpose Of a Termination Clause In An Employment Contract?
An employment contract is a contract that governs the working relationship between the employer and employee. An employment contract need not be in writing. Even a handshake agreement constitutes a ‘contract’. However, most employees are subject to some form of written employment contract.
What is a termination clause in an employment contract?
Most often, an employment contract will contain a termination clause. A termination clause outlines the terms in which the employment relationship ends, including obligations of both the employer and employee and employee entitlements, including notice periods.
What is the purpose of a termination clause in an employment contract?
The default entitlement upon termination without a termination clause is reasonable notice, under common law. This is meant to represent how long it should take an employee to find comparable work. Many factors go into this analysis, but the primary ones are age, position, tenure and salary. Reasonable notice at common law is generally much higher than these statutory minimums under the Employment Standards Act, 2000 (ESA). Reasonable notice can reach up to 24 months at the high end, or even more in exceptional circumstances. This explains why employers attempt to limit entitlements.
Employers are entitled to limit entitlements, as long as they do not violate employment standards or other legislation, such as employees’ statutory entitlements to notice of termination and severance pay.
When is a termination clause unenforceable?
Termination packages are not as simple as pointing to a clause in a contract and forcing an employee to accept whatever they have been offered. The courts have held again and again in favour of employee entitlements at the time of termination, and that means you could have significant entitlements if you have been let go from your job.
The courts hold these restrictive termination clauses to an extremely high standard. The reasoning behind this is that employment relationships tend to hold an imbalance of power. Employers are usually in the driver’s seat when it comes to negotiations, and many employees simply sign whatever is put before them at hiring.
As well, termination represents a very vulnerable period of an employee’s life. There are anxieties about paying bills, finding new work, but also relating to one’s self-worth. Losing a job, even for non-performance-related reasons, is often a severe blow to confidence.
As a result, employers need to be very careful that their termination clauses do not fall afoul of employment standards legislation. If a termination clause is drafted in such a way that there is even a potential situation where an employee might get anything less than their statutory entitlements, that termination clause will likely be found to be unenforceable.
It doesn’t matter if an employee doesn’t actually get less than their statutory minimums at termination, or even whether the employer relies on that part of the termination clause at all. One illegal portion poisons the entire termination clause and restores employees’ entitlements to reasonable notice.
Why should employees always have their termination offer reviewed?
Employers are often hesitant to admit the weaknesses of their termination clauses and will very seldom provide anything close to their employee’s full reasonable notice entitlements in their first offer at termination. An experienced employment lawyer can point out all the flaws in a termination clause, help you judge the strength of your claim, and vigorously fight on your behalf to maximize your severance package. If you have any questions regarding termination clauses and your potential entitlements on termination, please contact Whitten & Lublin online or by phone at (416) 640-2667 today.
Author – Sohrab Naderi