Contracting Out of Wrongful Dismissal Awards

Written on behalf of Peter McSherry
employee reviewing employment contract to ensure compliance with the Employment Standards Act
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It is clear that an employment contract can be used by a company to “contract-out” of the common law, or judge made law, legal rights of an employee on termination of employment.

The Employment Standards Act

There is a fundamental rule which the company must follow to allow it to use such an argument to avoid the common law claim. The agreement must always be compliant with the minimum obligations set by the Ontario Government in the Employment Standards Act. (The ESA)

This law mandates two minimum obligations on termination of employment without just cause. The first requires working notice or payment in lieu of notice plus continuation of all benefits for the following time periods:

  1. After 3 months 1 week
  2. After 1 year 2 weeks
  3. After 3 years 3 years
  4. For each full year thereafter, one additional week to a cap of 8 weeks.

The same law also requires severance pay of one week per year of employment or part year if the company payroll exceeds $2.5 million annually and the employee has worked for 5 years or more.

The employment agreement must be sure to allow for these statutory claims as minimum payments. Should it not do so, the termination clause may be invalid and the employee will then be entitled compensation for the failure to provide reasonable notice.

Benefits Must be Included

The contract will be examined closely by the court. A recent example of this is a decision of the Ontario court[1] which invalidated the contract. The clause did say that the employer would pay the termination payment of the ESA but it did not state that the benefits would be provided. The agreement also said that these terms were all the obligations owed. The agreement hence stated on its face that the obligations under the contract were less than those provided by the ESA.

Had the contract stated that the benefits would also be provided, the termination clause likely would have been upheld.

A period of 4 months notice was awarded. The award, which has yet to be defined in dollars, will be considerable, given that the plaintiff’s base salary exceeded $225,000.

Get Advice

This case is a good example of needing legal advice to review the employment contract. The words on the page will not necessarily define your legal entitlements. This case is a good example. Had the plaintiff not obtained advice, he would have received only 1 week pay as he had been employed for 22 months on termination.

Legal advice may well open doors to substantial recovery.

If you have questions about your employment contract, contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues, help you understand your rights, and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation


[1] King v DST