The Value of Well-Drafted Employment Contracts: Oudin v. Le Centre Francophone de Toronto, 2015 ONSC 6494 (S.C.J.)
February 2016
Article by:
Delayne Sartison K.C.
Previously printed in the LexisNexis Labour Notes Newsletter
Employers often enter into written employment contracts with employees in an effort to define and minimize liability for notice and severance obligations on termination without cause. Parties are precluded, however, from “contracting out” of employment standards minimum protections. Employment contracts that purport to provide employees with less than minimum standard notice or severance are not enforceable. The Ontario Superior Court of Justice tackled in Oudin v. Le Centre Francophone de Toronto, 2015 ONSC 6494 (S.C.J.) an employee’s challenge to notice/severance language that he argued was unenforceable because it undercut his minimum standard entitlements.
The plaintiff was hired by the defendant, a non-profit society, in 2000 to manage the production of a magazine published by the defendant. The plaintiff worked, until 2007, on the basis of a series of one-year contracts that included a base salary of $28,000 per year and 20 percent of the value of sales of advertisements placed by him. In 2007, the parties entered into an indefinite term employment contract under which the plaintiff’s base salary increased to $50,000 and commission increased significantly to between 50 and 65 percent of the value of sales over certain established amounts.
The new contract also limited the plaintiff’s notice entitlement to the greater of fifteen days or the notice prescribed by the Ontario Employment Standards Act (“ESA”). The Court noted that the 2007 contract followed a template form and the parties agreed that at the time it was signed, the plaintiff had already accrued minimum notice/severance entitlements exceeding the 15 days contemplated in the employment agreement.
The plaintiff’s employment was terminated in September 2013 after several years of declining sales for the magazine. The defendant provided the plaintiff with 21 weeks of termination and severance pay (8 weeks of termination pay and 13 weeks of severance) under the ESA and offered an additional 12 weeks of pay in exchange for a release. The plaintiff refused the offer. The defendant also voluntarily maintained the plaintiff’s benefits until March 31, 2014.
At trial, the plaintiff sought pay in lieu of common law “reasonable notice” and argued that his written contract was unenforceable for two reasons: the contract allowed for termination without notice in case of “continuing incapacity considered permanent” (based on legislation that was later amended) and allowed for termination on only 15 days’ notice even though his service at the time entitled him to much more than 15 days’ notice under the ESA. The defendant conceded that the incapacity clause was likely now unenforceable, disputed that the termination clause was illegal given the mutual understanding at the time that the plaintiff would receive ESA minimums in excess of 15 days, and further relied on section 12.2 of the contract which expressly provided that any contract provision that was unlawful would be modified or nullified to the extent necessary to comply with the law and allow other contract provisions to remain in place.
The Court accepted that the parties did not intend to contract out of the minimum standards of the ESA and held that the plaintiff’s challenges to the contract “represent[ed] either strained interpretations or [were] easily and reasonably cured using the curative language contained in the employment agreement itself”. The Court held that the incapacity clause rendered illegal as a result of legislative change was properly excised in keeping with section 12.2 of the contract and that the termination clause could be reasonably interpreted to provide for the ESA entitlement rather than an illegal 15 day notice/severance entitlement.
The Court specifically noted that the plaintiff was a well-educated individual and the employment agreement represented an opportunity for him to earn substantial additional income. The Court also commented that it was not appropriate to “strive to find the least plausible interpretation the language [would] bear simply because the outcome happen[ed] to favour one party or another in hindsight”. The contract was reasonably interpreted to provide the plaintiff with the greater of 15 days or the ESA minimums and this was, in fact, provided to the plaintiff.
This decision confirms the importance of well-drafted employment contracts and the value of severance clauses which allow for any terms later rendered illegal to be excised without impacting the enforceability of the entire agreement.
February 2016
Previously printed in the LexisNexis Labour Notes Newsletter
Employers often enter into written employment contracts with employees in an effort to define and minimize liability for notice and severance obligations on termination without cause. Parties are precluded, however, from “contracting out” of employment standards minimum protections. Employment contracts that purport to provide employees with less than minimum standard notice or severance are not enforceable. The Ontario Superior Court of Justice tackled in Oudin v. Le Centre Francophone de Toronto, 2015 ONSC 6494 (S.C.J.) an employee’s challenge to notice/severance language that he argued was unenforceable because it undercut his minimum standard entitlements.
The plaintiff was hired by the defendant, a non-profit society, in 2000 to manage the production of a magazine published by the defendant. The plaintiff worked, until 2007, on the basis of a series of one-year contracts that included a base salary of $28,000 per year and 20 percent of the value of sales of advertisements placed by him. In 2007, the parties entered into an indefinite term employment contract under which the plaintiff’s base salary increased to $50,000 and commission increased significantly to between 50 and 65 percent of the value of sales over certain established amounts.
The new contract also limited the plaintiff’s notice entitlement to the greater of fifteen days or the notice prescribed by the Ontario Employment Standards Act (“ESA”). The Court noted that the 2007 contract followed a template form and the parties agreed that at the time it was signed, the plaintiff had already accrued minimum notice/severance entitlements exceeding the 15 days contemplated in the employment agreement.
The plaintiff’s employment was terminated in September 2013 after several years of declining sales for the magazine. The defendant provided the plaintiff with 21 weeks of termination and severance pay (8 weeks of termination pay and 13 weeks of severance) under the ESA and offered an additional 12 weeks of pay in exchange for a release. The plaintiff refused the offer. The defendant also voluntarily maintained the plaintiff’s benefits until March 31, 2014.
At trial, the plaintiff sought pay in lieu of common law “reasonable notice” and argued that his written contract was unenforceable for two reasons: the contract allowed for termination without notice in case of “continuing incapacity considered permanent” (based on legislation that was later amended) and allowed for termination on only 15 days’ notice even though his service at the time entitled him to much more than 15 days’ notice under the ESA. The defendant conceded that the incapacity clause was likely now unenforceable, disputed that the termination clause was illegal given the mutual understanding at the time that the plaintiff would receive ESA minimums in excess of 15 days, and further relied on section 12.2 of the contract which expressly provided that any contract provision that was unlawful would be modified or nullified to the extent necessary to comply with the law and allow other contract provisions to remain in place.
The Court accepted that the parties did not intend to contract out of the minimum standards of the ESA and held that the plaintiff’s challenges to the contract “represent[ed] either strained interpretations or [were] easily and reasonably cured using the curative language contained in the employment agreement itself”. The Court held that the incapacity clause rendered illegal as a result of legislative change was properly excised in keeping with section 12.2 of the contract and that the termination clause could be reasonably interpreted to provide for the ESA entitlement rather than an illegal 15 day notice/severance entitlement.
The Court specifically noted that the plaintiff was a well-educated individual and the employment agreement represented an opportunity for him to earn substantial additional income. The Court also commented that it was not appropriate to “strive to find the least plausible interpretation the language [would] bear simply because the outcome happen[ed] to favour one party or another in hindsight”. The contract was reasonably interpreted to provide the plaintiff with the greater of 15 days or the ESA minimums and this was, in fact, provided to the plaintiff.
This decision confirms the importance of well-drafted employment contracts and the value of severance clauses which allow for any terms later rendered illegal to be excised without impacting the enforceability of the entire agreement.