BC Court of Appeal Confirms Canada Labour Code Termination Clause is Enforceable

July 2, 2024

Article by: Christopher Munroe

In welcome news for employers, the B.C. Court of Appeal in Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222, has confirmed that a termination clause that incorporates the requirements of the Canada Labour Code by reference is enforceable and sufficient to displace the common law presumption of reasonable notice.  In doing so, the Court commented on conflicting decisions in other provinces and restated important principles of employment contract interpretation.  This case is important for employers in British Columbia and for federally-regulated employers in all provinces because the common law presumption of reasonable notice usually results in severance awards that far exceed the minimum notice and severance obligations under applicable employment standards legislation.

The termination clause at issue read as follows:

The Harbour Air group may terminate your employment at any time without cause so long as it provides appropriate notice and severance in accordance with the requirements of the Canada Labour Code.

At summary trial, the former employee argued that the clause was unenforceable because: (i) it did not clearly define or limit his entitlements on termination and was therefore ambiguous; and (ii) it allowed the employer to change his employment terms during the notice period, contrary to section 231 of the Canada Labour Code.  The trial judge found that the clause was not ambiguous and was sufficient to displace the presumption of reasonable notice.

The Court of Appeal upheld that decision but found that the lower court had applied a flawed contractual analysis.  Despite this, the Court of Appeal found that applying a proper analysis led to the same outcome: the clause was sufficient to displace the common law presumption of reasonable notice.

The Court of Appeal restated the following important legal principles in relation to employment contracts:

  1. Employers may rebut the presumption of common law reasonable notice by specifying some other period of notice in an employment contract, but those clauses must comply with at least the minimum notice periods set by applicable employment standards legislation.
  2. Despite conflicting jurisprudence in other provinces, referentially incorporating the requirements of legislation with words like “in accordance with” or “as required under” is usually sufficient to displace the presumption of reasonable notice in British Columbia.
  3. In interpreting an employment contract, a court should review the whole contract in a manner consistent with the factual matrix known to the parties at the time they signed it.
  4. The enforceability of employment contracts is determined with reference to the time the contract was executed, not at the time of termination.
  5. In interpreting a contract, the court should seek to determine the true intentions of the parties and should not search for ambiguity to render the clause unenforceable.
  6. Mere silence with respect to a particular statutory entitlement does not render a termination clause invalid as non-compliant with the applicable legislation.
  7. The fact that a termination clause does specifically state that the statutory minimum entitlement is the maximum the employee is entitled to does not necessarily mean that the clause is ambiguous or insufficient to rebut the presumption of reasonable notice.

In applying these principles, the Court of Appeal found that the termination clause clearly specified a period of notice other than common law by incorporating the notice and severance provisions of the Canada Labour Code.

The Canada Labour Code requires employers to provide “at least” a certain amount of notice.  As such, the Canada Labour Code sets a “floor”, not a “ceiling” of notice.  Note that the B.C. Employment Standards Act differs from the Canada Labour Code in this regard. The Court commented that the words “at least” in the statute and the fact that the termination clause did not specifically set a maximum amount of notice did not render it ambiguous.  The clause provided that the employee would get at least what is required by the Canada Labour Code, and that is clear enough.  The Court did not find conflicting authorities in other provinces to be persuasive on this issue.

The Court went on to consider whether the termination clause’s silence with respect to bonuses which may be required as part of pay in lieu of notice rendered the clause unenforceable.  The Court rejected that argument:

[70]  As discussed above, the Termination Clause simply incorporates the notice and severance provisions of the Code, effectively guaranteeing Mr. Egan with all that is statutorily required in relation to those provisions. It is silent about Harbour Air’s obligations in respect of bonuses and other benefits. This silence cannot be construed as permitting Harbour Air to contract out of any statutory obligations. To the contrary, the Termination Clause obliges Harbour Air to comply with the requirements of the Code in this regard.

The Court found that the termination clause at issue here was different from that found unenforceable in an Ontario decision, Sager v. TFI International Inc., 2020 ONSC 6608, because Harbour Air’s termination clause did not purport to expressly limit the employee to some amount which excluded a mandatory statutory entitlement.

It is important to note that this case involved a managerial employee exempt from the unjust dismissal provisions of the Canada Labour Code.  It is possible that termination clauses for federally-regulated employees who are not managers may be interpreted differently in light of the Canada Labour Code provisions which prohibit without cause terminations except in limited circumstances.

In light of this decision, federally-regulated employers should seek legal advice with respect to their contracts and update their termination clauses accordingly.