The Court of Appeal of Alberta recently released its decision in Holm v. AGAT Laboratories Ltd., 2018 ABCA 23. Holm v. AGAT is a case regarding constructive dismissal in which the court focused on termination clauses in the plaintiff’s employment agreement, which limited notice to the minimums required under Alberta’s Employment Standards Code.
In October 2013, the plaintiff accepted the defendant’s offer of employment and executed an employment agreement which included the following termination clauses:
2(2) In the event we wish to terminate your employment without just cause, we agree that we will give you notice of the termination of your employment, or at our absolute discretion, we will pay you, in lieu of such notice, a severance payment equal to the wages only that you would have received during the applicable notice period. This will be in accordance with the provincial legislation for the province of employment.
…
2(3) You should realize that other than the foregoing notice, or at our absolute discretion wages only in lieu of such notice, you will not be entitled to any further compensation or notice arising out of the termination of your employment by us without just cause.
…
2(5) You understand and agree that other than the severance set out in paragraph 2(2) above, you shall not be entitled on the termination without just cause of your employment by AGAT to any other claim or compensation, damages, payment in lieu of notice, further notice of termination, or any other claim or compensation whatsoever, whether arising out of your employment by AGAT or the termination without just cause of your employment by AGAT.
…
2(6) In the event of the termination of your employment by AGAT for just cause, should a court of competent jurisdiction find that AGAT in fact did not have just cause, you further agree that you will not have any claim against AGAT greater than the severance payment referred to in paragraph 2(2) herein.
…
57(1) Instead of giving a termination notice, an employer may pay an employee termination pay of an amount at least equal to the wages the employer would have earned if the employee had worked the regular hours of work for the applicable notice period.
In its review of the termination clauses, the Court of Appeal of Alberta agreed with the Chambers Judge’s view that the clauses were ambiguous and lacked the necessary clarity to limit an employee’s rights on termination without cause.
[21] The chambers judge accepted that employee rights can be limited through clear and unequivocal contractual language. We agree. Clearly, the common law presumption of termination only on reasonable notice can be rebutted through clear and unambiguous language in an employment contract specifying a different notice period …The question is whether the termination provisions in section 2 of the Agreement meet the “high level of clarity” required to extinguish the respondent’s common law rights … [emphasis added].
Termination Clauses- Wording and Ambiguity
This decision made by the Court sends a clear message to employers that termination clauses must be clearly worded and lack any ambiguity that may limit an employee’s rights on termination. Failure to have a clearly worded and obviously interpreted termination clause can result in an employee being entitled to significantly higher pay in lieu of notice on termination, beyond that which is in the employment agreement or the applicable Employment Standards legislation. While an employment agreement cannot contract out of legislative minimums, it can limit the amount payable to a terminated employee to legislative minimums. Without an employment agreement, an employee, upon termination is entitled to both the legislative minimums and also the amounts that would otherwise be awarded by the courts. These amounts can be significant for an employer seeking to rely on an ambiguously worded employment agreement. Generally a terminated employee is entitled to one week of notice per year of service under Employment Standards legislation, but absent a valid termination clause in an employment agreement, an employer could be liable for between two to six weeks of pay in lieu of notice to a terminated employee.
According to O’Ferrall J.A., concurring with the result of the majority of the Court of Appeal in Holm v. AGAT Laboratories Ltd.:
[40] Perhaps the best way to explain the result in this case to the appellant employer is to say that in employment law it is sometimes not as much about ascertaining the parties’ intention as it is about applying judicially-mandated principles of interpretation designed to protect employees because of perceived, and sometimes very real, inequality of bargaining power as between employees and employers. At least two of those principles were operative in this case. One was the principle that termination clauses will only rebut the presumption of reasonable notice if they are absolutely clear. The other is that faced with a clause in an employment contract which could reasonably be interpreted in more than one way, courts are required to prefer the interpretation which gives the greatest benefit to the employee. [emphasis added].
The Limiting Nature of Termination Clauses
There has been a recent trend in Ontario, Alberta and British Columbia to challenge the limiting nature of termination clauses in employment agreements. The courts have unanimously maintained the principal of contra proferentem, which is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording, namely the employer. As such, it is vitally important for employers to ensure that their employment agreements are clear, concise, and unambiguous. Failing which the court will likely interpret the agreement against the employer and increase the amount of damages awarded for wrongful termination.
Scott Chambers is an employment and human resources lawyer at Doak Shirreff Lawyers LLP. Click HERE to connect with Scott. He can also be reached at [email protected] or 250-979-2527.
Be sure to follow Scott on twitter at @DSEmploymentLaw and on Linkedin at www.linkedin.com/in/scottdchambers