Potential violation of employment standards in future renders termination provision void: Court

Termination provision for fired executive greater than legislative minimum but would not have been with longer service
|employmentlawtoday.com|Last Updated: 04/26/2012

An Ontario employer’s termination provision has been found by a court to be unenforceable because it could potentially violate the province’s employment standards legislation.

John Wright joined The Young and Rubicam Group of Companies on Jan. 10, 2005, as the organization’s executive vice-president and director of integrated marketing. When he started work, he signed an employment agreement that included a without-cause termination provision that allowed the organization to provide payment in lieu of notice as follows:

•During probationary term — one week’s notice
•Within two years of commencement of employment — four weeks' base salary
•After two and up to three years after commencement of employment — six weeks’ base salary
•After three but less than five years after commencement of employment — eight weeks' base salary
•Five years or more and up to 10 years after commencement of employment — 13 weeks' base salary, plus one additional week of base salary for every year from six to 10 years of service up to a maximum of 18 weeks
•After more than 10 years but less than 19 years from the commencement of employment — six months’ base salary
•After 19 years or more from the commencement of employment — 34 weeks' base salary (eight months).

The provision also stated that payment in lieu of notice would “be inclusive of all notice statutory, contractual and other entitlements to compensation and statutory severance and termination pay you have in respect of the termination of your employment and no other severance, separation pay or other payments shall be made.”

The organization terminated Wright’s employment on Feb. 1, 2010. With five years of service, he was entitled to a payment equal to 13 weeks of his base salary under the termination provision of his employment agreement. Wright was given 13 weeks of benefits and allowances in addition to his salary equivalent.

Despite the fact these payments were greater than Ontario’s employment standards minimums — five weeks’ notice and five weeks’ severance pay — Wright sued for wrongful dismissal, arguing the termination provision was unenforceable because the provision didn’t allow for payment of benefits upon termination and the pay in lieu of notice would eventually have been less than employment standards minimums.

The court agreed with Wright’s contention that the agreement excluded benefits from the contractual termination pay. Though the provision stated payment in lieu of notice was inclusive of all entitlements, it specifically referred to base salary as the amounts to be paid according to Wright’s length of service. This exclusion of benefits was contrary to Ontario’s Employment Standards Act, 2000, said the court.

The court also found that, although the termination provision provided payments greater than employment standards minimums at the time of Wright’s termination, it set out amounts that were less than the minimums after certain periods of time. For example, if Wright was terminated after 8.5 years, he would be entitled to eight weeks’ notice and 8.5 weeks’ severance pay — statutory severance pay in Ontario is one week’s pay for every completed year of service plus each additional month of service divided by 12. There would be a similar shortfall at 9.5, 10.5 and 18.5 years of services, said the court.

The court found that as long as the termination provision did not follow employment standards legislation at any point, it was void. It determined an appropriate notice period, in the absence of an enforceable termination provision, was 12 months.

For more information see:

Wright v. Young & Rubicam Group of Cos., 2011 CarswellOnt 10754

(Ont. S.C.J.).

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