Canada: Alberta Court Of Appeal Strikes Down Termination Clause In Employment Contract

Recently, the Alberta Court of Appeal considered the enforceability of a provision in an employment contract that attempted to limit the termination notice for three employees to 60 days. In Bryant v Parkland School Division, 2022 ABCA 220 [Bryant], the Court found that the termination clause in question was not "sufficiently clear, unequivocal and unambiguous to remove or limit the presumed common law right of employees to reasonable notice." The decision is noteworthy as it demonstrates the exacting and unique standard that termination clauses in an employment contract will be held to.

Background

Employers often include a termination provision in their standard employment contracts in order to limit the termination notice for an employee, in many cases to the minimum notice required under the applicable employment standards legislation. Without such a contractual limitation, it is an implied term in every employment relationship that an employee will receive reasonable notice at common law of the termination of their employment.

The difference between common law reasonable notice and the notice guaranteed by employment standards can be significant. Depending on the jurisdiction and the circumstances of employment, a long-service employee could be entitled to up to 24 months of notice at common law, compared to just 8 weeks of notice under legislation such as the Alberta Employment Standards Code.

As a result, dismissed employees are often highly motivated to challenge the enforceability of a termination clause. This was the case in Bryant, where three long-term employees were dismissed without cause. All three employees had signed identical, standard form employment contracts which included the following term:

This contract may be terminated by the Employee by giving to 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 employer provided each of the employees with 60 days of notice when dismissing them. The three employees challenged the employer's interpretation of the termination provision, claiming that they were entitled to reasonable notice at common law.

The basic facts were not in dispute and the only real question was one of contractual interpretation: did termination clause mean that the employer could dismiss the employees by providing them with only 60 days of written notice, or did it mean that the employer would provide them with a minimum of 60 days of written notice and leave the implied right to reasonable notice at common law intact?

At trial, the chambers judge decided that it was the former. He found that the intent of the phrase "sixty (60) days or more" was not ambiguous since it provided a fixed level of notice, while also providing the employer the discretion to give more. In addition, a notice period of at least 60 days exceeded what the employees were entitled to under the Alberta Employment Standards Code. The employees in question were therefore not entitled to reasonable notice at common law and there was no reason for the court to find the termination clause unenforceable.

The Alberta Court of Appeal disagreed. In doing so it reviewed a variety of employment law decisions from the Supreme Court of Canada, as well as and the Alberta and Ontario courts of appeal, noting the following:

• There is a power imbalance that exists between employers and employees when employment contracts are negotiated and signed. Courts will not treat these contracts in the same way as other commercial contracts.
• Employment and the way in which it can end plays a significant role in an employee's life and well-being. One of the interpretive principles that courts have developed to protect employees is to interpret any ambiguity in a contract in favour of the employee.
• To rebut an employee's implied right to reasonable notice at common law, the employment contract must use language that is (quoting the other decisions) "clear and unambiguous," "clear and unequivocal" or that meets a "high level of clarity."

In the Court of Appeal's view, the correct way to assess the enforceability of a termination clause is to start by recognizing the employee's implied right to reasonable notice at common law and then ask if this right has been clearly and unambiguously limited or excluded by the employment contract.

Using this approach, Alberta Court of Appeal found that the termination clause in the three employees' contract did not unambiguously rebut their right to common law notice:

• it did not provide a fixed amount of notice that the employees would receive;
• it did not place an upper limit on how much notice the employees could receive;
• the term did not specifically grant the employer discretion; and
• the words "or more" explicitly left open the possibility that the employees could receive more than 60 days' notice.

Therefore, "the reading more favourable to the employee must prevail"—notwithstanding the termination clause present in each of their employment contracts, each of the employees was found to be entitled to reasonable notice at common law.

Takeaways

In Bryant, the Alberta Court of Appeal gives a reminder that employment contracts and termination clauses specifically are not treated like other contracts.

Provided they at least meet or exceed the minimums required by the relevant employment standards legislation, employers are still free to draft employment contracts that limit an employee's right to notice of dismissal.

However, Canadian courts have expressed their awareness of the power disparities that exist at the start of almost all employment relationships and vulnerability of employees when those relationships end. They will not enforce a termination clause that either violates a legislated minimum, fails to explicitly rebut the right to common law reasonable notice, or that is void or voidable for some other reason.

When it comes to determining whether or not the right to common law notice has been rebutted, Bryant sets out the correct approach to follow and draws the critical distinction between asking whether a term is ambiguous and asking whether it has unambiguously extinguished the right.

In its decision, the Alberta Court of Appeal indicated that if the termination clause had merely said that the board could dismiss employees by providing "60 days" of notice (and not "60 days or more"), that would have been sufficiently clear to exclude the right to reasonable notice at common law. A compliant clause does not need to follow some esoteric legal formula: it can be accomplished with simple English as long as it is obvious that it expressly or impliedly limits the employee's entitlement.

The Bryant decision is consistent with the direction taken by courts in other Canadian common law jurisdictions. Regardless of where they are located, employers should carefully review and monitor the termination clauses they hope to rely on.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.