Welcome News from the Ontario Court of Appeal: Nemeth v. Hatch Ltd.

February 28, 2018 | Lisa Goodfellow

In a refreshing and sensible decision released in January, the Ontario Court of Appeal found the express termination clause in a contract of employment to be enforceable and to restrict the plaintiff’s entitlement to notice.

The clause in question provided:

The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing.  The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.

The plaintiff challenged the clause on two points:

  • that it did not expressly state that it limited or excluded his entitlements under the common law;  and
  • that it attempts to contract out of the Employment Standards Act (“ESA”), as it did not reference his entitlement to statutory severance pay.

The Court of Appeal confirmed that the parties need not use any particular phrase or formula to displace the entitlement to reasonable notice at common law, or specifically reference those rights.  It is enough that their intention is clear and can be readily gleaned from the language agreed to by the parties.  It found that the above language did clearly denote an intent to displace the common law right to reasonable notice.

Further, the Court found that the silence of this clause concerning severance pay did not denote an intention to contract out of the ESA.  The clause purports to limit the amount of notice to which the plaintiff would be entitled, but not his severance pay rights.  The Court pointed out the important distinction between notice and severance.  As such, it was not void pursuant to section 5(1) of the ESA.

The Court enforced the termination clause as written and found that the plaintiff was entitled to 19 weeks of notice, reflecting his 19 years of service.

This decision should put to rest many of the arguments that plaintiffs’ counsel assert in attempts to challenge express contractual termination provisions.

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