Alberta court upholds employer-friendly termination clause

Grant Machum, ICD.D and Emily Murray

Two employer-friendly decisions from Alberta have set a precedent in favour of an employer’s right to rely on a termination clause in an employment contract, provided that the clause is clear and unambiguous.

In Atlantic Canada, as well as other provinces across the country, termination clauses are typically interpreted in favour of the employee. Courts have “bent over backwards” to avoid relying on termination clauses, in order to provide employees with common law reasonable notice.¹ These recent decisions out of Alberta provide some guidance to employers with respect to the enforcement and interpretation of such clauses, and provide examples of what is considered a well-drafted termination clause.

Lawton v Syndicated Services Inc, 2022 ABPC 3

In this decision, the Provincial Court of Alberta upheld a termination clause in an employment contract that limited the employee’s notice period to just four weeks.

Mr. Lawton was Chief Operating Officer and General Manager for Syndicated Services Inc. His employment with the company began in August 2018. The parties negotiated the employment contract to include the following clause: “termination of this contract requires 4 weeks’ notice.”

In 2020, the company was already doing poorly due to a downturn in the economy. When the COVID-19 pandemic hit, it was described as the “nail in the coffin”. Mr. Lawton’s employment was terminated on April 30, 2020 and he was provided four weeks’ pay in lieu of notice. Mr. Lawton brought a claim for $64,538.34 in severance pay, $15,000 in damages as benefits, and $10,000 in enhanced damages.

The court held that the termination clause was clear and unambiguous. It also noted that this term had been negotiated by the parties. The clause was prepared such that in the event of termination, Mr. Lawton would receive benefits in excess of the minimum standards prescribed by the Employment Standards Code. Mr. Lawton was employed for approximately 20 months. Under the Employment Standards Code, the severance without notice would only be one week. The court stated at paragraph 26:

Parties are entitled to enter contracts and negotiate employment terms. So long as the terms are not to frustrate legislative mandate and they are negotiated freely and voluntarily, they ought to be enforced.

Mr. Lawton’s claim was dismissed with costs.

Bryant v Parkland School Division, 2021 ABQB 391

In this decision, the Court of Queen’s Bench of Alberta upheld a termination clause in an employment contract that allowed the employer to terminate employment with “60 days or more” written notice.

The three Plaintiffs were employed by the Parkland School Division and worked primarily in the area of information technology. All were long-term employees: Bryant was employed by Parkland for almost 10 years, while the other plaintiffs were employed for almost 15 years. The Plaintiffs each entered into an employment contract that was drafted by Parkland. The contract was a standard form contract used by Parkland and contained the following clause: “This contract may be terminated by the Employee by giving the Board thirty (30) days or more prior written notice, and by the Board upon giving the Employee sixty (60) days or more written notice.”

The Plaintiffs’ employment was terminated due to a restructuring program. There was no cause alleged for the termination of their employment. The Plaintiffs brought a summary judgement application seeking damages consistent with common law reasonable notice in excess of the 60 days’ notice they were provided.

The court held that the termination clause was unambiguous. The termination clause, read in its plain and ordinary meaning, yielded one meaning: that the Plaintiffs were entitled to 60 days’ notice or something greater. The clause provided a base level of notice, and also allowed Parkland to provide more notice at its discretion. 60 days’ notice complied with the minimum notice period required under the Employment Standards Code for employees with 10 or more years of service. The fact that the termination clause included the words “or more” did not mean that the employees were entitled to common law reasonable notice.

In the words of the court at paragraph 80: “the common law does not imply a right to reasonable notice when a contract addresses termination.” The Plaintiffs’ application for summary judgement was dismissed, and the employer’s application for summary dismissal was granted.

What this means for employers

Courts have traditionally strained to find some level of ambiguity in a termination clause in order to provide employees with common law reasonable notice. As most employment contracts are drafted by the employer, any level of ambiguity will be interpreted against the employer under the principle of contra proferentem.

For example, in Bellini v Ausenco Engineering Alberta Inc, 2016 NSSC 237, the court found the following termination clause to be ambiguous:

Although the Company anticipates a long term employment relationship, our business is subject to economic factors which sometimes necessitates a reduction in workforce. We have therefore adopted a policy of specifying termination conditions in our employment letters. If it becomes necessary for us to terminate your employment for any reason other than cause, your entitlement to advance working notice or pay in lieu of such notice, will be in accordance with the provincial employment standards legislation.

The court found that this clause was ambiguous as to whether the parties intended the statutory minimum to apply, as it could also be interpreted to mean that the applicable notice period would be consistent with the legislation. The court also noted at paragraph 43 that it “would not be difficult for an employer to draft a termination clause that leaves no doubt as to the parties’ intention to oust common law notice.”

These decisions all highlight the necessity of careful drafting of employment contracts. It is important that employers review the language of the applicable employment standards legislation and consider its effect on the interpretation of the termination clause.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact a member of our Labour and Employment group.

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¹ Tomie v May, 2018 NSSM 70 at para 15.