July 26, 2018

At common law, employees are presumed to be entitled to reasonable notice upon termination. This presumption can be rebutted by a termination clause, a contractual term which restricts an employee’s entitlement to notice, severance and/or pay in lieu to something less than the often generous reasonable notice entitlement.

Given the ability of a termination clause to limit an employee’s common law entitlement, it is unsurprising that in recent years the courts have enforced rigorous standards in the interpretation of termination clauses. These recent cases have left employers uncertain of the enforceability of their termination clauses and apprehensive as to how the courts will treat them. At present, termination provisions must be unequivocal, reasonable, meet the employee’s minimum entitlements under the employment standards legislation, and must explicitly displace an employee’s entitlement to notice at common law. The courts have also made it clear that any ambiguity contained in a termination clause will be strictly interpreted against the employer.

A recent decision by the Ontario Court of Appeal has provided some much needed certainty as to the interpretation of termination provisions. In Amberber v IBM Canada Ltd., 2018 ONCA 571, the Ontario Court of Appeal reaffirmed the principle that termination clauses must be interpreted as a whole and held that courts should not seek to find ambiguities where drafting is clear and unequivocal.

Noah Amberber (“Mr. Amberber”) worked for IBM for over fifteen (15) years when his employment was terminated without cause. IBM sought to rely on the termination clause in Mr. Amberber’s contract in order to limit his entitlement to notice. The termination clause provided that Mr. Amberber would receive the greater of either one month’s base salary or one week’s base salary for each completed six-month period of employment. The termination clause expressly stated that this payment was inclusive of all notice and severance owed under provincial employment standards legislation. Finally, the clause stated that if the entitlements outlined in the termination clause were less than Mr. Amberber’s statutory entitlements, then he would be entitled to receive the greater notice and severance in accordance with the employment standards legislation instead.

At trial, Mr. Amberber argued that the termination clause in his employment agreement failed to rebut the presumption at common law that he was thus entitled to reasonable notice of termination.

The motion judge held that the termination clause consisted of three parts. First, the “options provision” provided either one month’s notice or one week’s notice for every six months worked. Second, the “inclusive payment provision” stipulated that the payment was inclusive of all entitlements under the relevant employment standards legislation. Third, the “failsafe provision” stated that Mr. Amberber would receive his notice and severance entitlement under provincial employment standards legislation if those benefits were greater than the entitlements set out in the termination clause.

The motion judge held that it was not clear that the “inclusive payment provision” was meant to apply to the “failsafe provision”. She also found that the “failsafe provision”, when read on its own, did not rebut the common law presumption of reasonable notice. Finding an ambiguity, the motions judge applied the principle of contra proferentum, and determined that the ambiguity must be resolved in Mr. Amberber’s favour.

The Court of Appeal overturned the motion judge’s decision, holding that the lower court erred by finding an ambiguity where none existed. Writing for the Court, Justice Gray reaffirmed the principles of contractual interpretation with respect to employment contracts. Noting that employment contracts are to be interpreted differently than ordinary commercial contracts, the Court found that the motion judge made a fundamental error by bifurcating the termination clause into three parts, and interpreting each part individually rather than reading the termination clause as a whole. The Court held that when read as a whole, the termination clause was clear and unambitious.

The Court cited its 1997 decision in Chilton v. Co-operators General Insurance Co, for the principle that “[t]he court should not strain to create an ambiguity where none exists”.

The Court concluded that the motion judge failed to apply the well-established principles of contractual construction. Rather than interpreting the termination clause as a whole, she strained to find an ambiguity where none existed, and she deviated significantly from the text of the clause. Having found so, the Court concluded that the motion judge committed extricable errors of law that were reviewable on a standard of correctness.

Amberber will likely serve to be a helpful decision for Ontario employers. While the Court of Appeal made it clear that employment contracts will be interpreted differently than standard commercial contracts, it also firmly stated that courts should not stretch to find ambiguities where drafting is clear. Finally, Amberber makes it clear how important it is to include a “failsafe” provision in a termination clause. Overall, Amberber stands for the importance of careful and unambiguous drafting. As such, employers should exercise a high degree of caution when drafting termination clauses, and should always seek legal advice to ensure that the termination clause meets the current requirements of the law.