Court Weighs in on Federally-Regulated Employee’s Termination Clause

Written on behalf of Peter McSherry

Unlike most employment disputes in Ontario, disputes related to a federally-regulated employee are commonly adjudicated by a tribunal pursuant to the Canada Labour Code. As a result, it is uncommon that a provincial court has the opportunity to consider issues relating to this specific area of employment law. However, the Ontario Superior Court recently had the chance to do just this in a decision centred on the termination clause in a federally-regulated employee’s employment contract.

Which Industries are Federally Regulated in Canada?

Certain employment scenarios are regulated at the federal level as opposed to provincial, meaning the Canada Labour Code governs the various disputes that can arise. Public sector roles including those employed in Parliament or in federal public service, are included, as well as a number of private sector industries, including:

• Transportation (airlines, airports, railways, road services, trucks and buses)
• Port services, marine shipping, ferries, bridges, pipelines that cross provincial or international borders
• Telecommunications (telephone, internet, cable)
• Broadcasting (radio and television)
• Crown corporations such as Canada Post
• First Nations Band Councils
• Banking

Employee Claims Termination Clause is Unenforceable

The employee in question was the Vice President of Sales and Customer Care at a subsidiary of an international transportation and logistics corporation. At the time the employee was hired, he entered into an employment agreement containing a termination clause, which stated that, upon termination, the employee would be entitled to: “the greater of three (3) months’ base salary or one (1) month base salary per year of completed service to a maximum of 12 months.”

The employee was terminated after approximately two and a half years of employment, without cause. At the time, he was offered the equivalent of three months’ of his base salary as compensation in lieu of notice, per the terms of his termination clause. The employee argued that the termination clause was unenforceable because it failed to consider compensation outside of his regular salary (i.e. his bonus entitlements).

Court Finds Termination Clause Failed to Consider Bonus Entitlements

The Court held that the employer offered sufficient payment with respect to the employee’s base salary, and in fact, exceeded the minimum required under the Canada Labour Code. However, the Court also found that the termination clause failed to take the employee’s additional benefits/income into consideration under section 231(a) of the Code, which states:

Where notice is given by an employer pursuant to subsection 230(1), the employer

(a) shall not thereafter reduce the rate of wages or alter any other term or condition of employment of the employee to whom the notice was given except with the written consent of the employee;

(b) shall, between the time when the notice is given and the date specified therein, pay to the employee his regular rate of wages for his regular hours of work.

The termination clause expressly excluded the employee’s income outside of his basic salary (his pension, benefits, car allowance and bonus) by stating the lump sum payment was in satisfaction of all requirements under the Code. By failing to include this additional income in the payment during the notice period, the employer had, in effect, altered the terms of employment during the notice period. As a result, the agreement was unenforceable and the employee was entitled to notice under the common law, which is generally much more generous than legislative notice periods.

The Court awarded the employee nine months of notice, accounting for his salary and additional income, as well as a continuation of his employment benefits for the duration of the notice period.

Employees concerned that their termination clause may unfairly restrict their entitlements during any notice period after dismissal should discuss their circumstances with an experienced employment lawyer. This case has demonstrated that employers will not be permitted to exclude certain aspects of an employee’s income or compensation during the notice period.

If you are an employee in a federally regulated role seeking legal advice regarding a workplace dispute or the terms of your dismissal, contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation.