Ringing in 2023 with a positive decision on termination clauses

The Supreme Court of British Columbia came out swinging in the first week of the new year with a decision on termination provisions in written employment agreements that is positive for employers.

In McMahon v Maximizer Services Inc., the plaintiff, who was employed for less than a year before her employment was terminated, challenged the enforceability of the termination clause in her employment agreement, seeking damages equivalent to six months’ pay in lieu of notice. The defendant had paid her two weeks’ base salary in lieu of notice of termination in accordance with the “termination without cause” clause in the written agreement, which read in part:

Maximizer will provide the greater of:

(a) the notice (or payment in lieu) prescribed by the Employment Standards Act of BC as amended or replaced from time to time; and

(b) Two (2) weeks’ written notice of termination (or payment in lieu), PLUS an additional one (1) week for every completed year of service to a maximum of four (4) months (“severance”).

In the event Maximizer initiates termination and that termination involves the payment of severance, severance will be calculated using base salary only. (Note: Any unused vacation is payable by law, and would be in addition to severance). Other compensation elements … will not be considered in severance calculations.

The plaintiff argued the clause was invalid for a plethora of reasons, in particular that:

• It was unclear which of the two entitlements she would receive,
• Use of the terms “notice” and “written notice” created confusion,
• It was unclear whether the definition of “severance” applied to the entire clause, and
• The clause required complex calculations to determine entitlements upon termination. 

The court disagreed with the plaintiff, noting that these arguments were in essence asking it to dissect the words of the termination clause in an attempt to find any ambiguity that could be used to set aside the parties’ agreement. This approach had been rejected by previous judicial authorities in BC and other provinces. Instead, the court found the termination clause to be clear and upheld it as enforceable, dismissing the employee’s wrongful dismissal claim.

The McMahon decision is welcome news for BC employers. Nonetheless, the most prudent course of action remains to implement, at first instance, a clear and unambiguous termination clause that is compliant with applicable employment standards legislation, and to review the language regularly to ensure compliance with statutory requirements and best practice.