Quick resolution in the employer's favour: Standing firm on an enforceable termination clause

A recent Ontario decision reminds us that (1) it is possible to draft an enforceable termination clause, and (2) responding to a wrongful dismissal claim does not have to be a lengthy, costly endeavour – some claims can be resolved quickly using procedural tools. 

In welcome news, the recent Ontario Superior Court of Justice decision in Bertsch v Datastealth Inc.¹ upheld a termination clause limiting an employee’s termination entitlements to the minimum set out in Ontario’s Employment Standards Act, 2000 (ESA). The court also found it was appropriate for the employer to bring a motion to declare the contract valid, disposing of the reasonable notice claim.

State of the law 

A termination clause sets out the agreement of an employer and employee on the notice or pay-in-lieu of notice an employee will receive upon termination. Without an enforceable termination clause an employee is entitled to common law “reasonable notice” or damages in lieu, a potentially lengthy period that ranges from a few weeks to two years or more.

A termination clause must comply with the minimum requirements of the ESA or it will be unenforceable. In that case the employee remains entitled to common law reasonable notice. Many wrongful dismissal claims turn solely on termination clause enforceability – whether the employee’s termination entitlements are limited to ESA minimums or are much larger at common law. Such was the case in Bertsch.

Case summary 

Mr. Bertsch was terminated without cause after 8.5 months of service. He brought a wrongful dismissal claim for 12 months’ reasonable notice, equivalent to approximately $300,000.  

He argued the termination clause in his employment agreement, which limited his notice entitlements to ESA minimums, was void for failing to reference an exemption from statutory termination entitlements set out in Termination and Severance of Employment, O. Reg. 288/01. Specifically, he argued the clause failed to properly reference the employer’s obligation to pay termination pay and severance pay unless the employee had engaged in “wilful misconduct, disobedience or wilful neglect of duty.” Effectively, Mr. Bertsch attempted to apply Waksdale v Swegon North America Inc,² a decision that sent employers back to the drafting board in 2020. He also asked the court to consider the power imbalance between himself and the employer. 

The employer’s position was that the termination clause was enforceable and the contractual terms could not be set aside. In particular, the employer distinguished the termination clause from the one scrutinized in Waksdale and argued that because the contractual terms did not violate the ESA that case was inconsequential. Rather than proceed to a trial, the employer brought a Rule 21 motion to verify the legality of the termination provision and have the matter dismissed for having no tenable cause of action.

The court determined it was appropriate for the employer to bring the motion, finding that an interpretation of the agreement’s enforceability at an early stage was useful, efficient and just. The result of the motion was the employer’s contractual terms were upheld and the matter was dismissed. In the court’s reasons it found that though the contractual terms were not simple, they were clear, unambiguous and in compliance with the ESA. The court also commented that there was “ no reasonable interpretation which would be contrary to the minimum requirements of the ESA and regulations.” Further, even if power balance was presumed, that would not change the outcome where the proper meaning of the clause is clear.   

Key takeaways

Bertsch is a welcome decision for Ontario employers. It is a reminder that:

• Drafting an enforceable termination clause is possible. So long as the clause sets out a clear notice entitlement, and there is no reasonable alternative interpretation that violates the ESA, an employer can stand on the clause to defend a wrongful dismissal claim.
• Quick, cost-effective disposition of claims is possible. A rule 21 motion is a simple, effective response to a wrongful dismissal claim where the only issue in dispute is the interpretation of a termination clause. There is no need to spend time and resources on lengthy litigation.

If your company has any questions regarding this case, Rule 21 motions or the enforceability of employment agreements, our labour and employment team is available to assist you.