26th March 2018

HR Managers: Does your Termination Clause Have the “Magic Words”?

Remember that catchy song with the chorus “Whoa, oh, oh, it’s magic, you know, never believe it’s not so …” (Pilot, Magic 1975)?

I do. It’s a fun tune. Click play and feel free to listen to it in the background while you read this article. You’ll find these lyrics ring true for the words used in termination clauses in employment contracts.

What is the purpose of a termination clause?

Simply put, a termination clause is put in a written employment contract by the employer, so that it can dismiss an employee without providing as much notice or termination pay, as it would otherwise be required to at law.

“In the event the company wishes to terminate the employee’s employment without just cause, it will pay the employee a severance payment equal to the wages only that the employee would have received during the applicable notice period. This will be in accordance with the provincial legislation for the province of employment (Alberta).”

What does this termination clause mean?

The employer, in this case, has attempted to draft the clause so that if it wishes to dismiss an employee without cause, the employee will only get the notice or severance pay set out in the Employment Standards Code (“Code”); not the much higher notice or severance pay that the employee is entitled to at law.

However, Alberta’s top court, the Court of Appeal, recently decided that the language in the above termination clause is not enforceable (see Holm v AGAT Laboratories Ltd, 2018 ABCA 23).

Employee rights, such as the right to reasonable notice or pay in lieu of notice (severance pay) can be limited through clear an unequivocal language.

• To limit an employee’s notice period (or severance pay) to the minimums set out in the Code, the language in the termination clause must be drafted with a high level of clarity.

• The minimum notice periods set out in the Code are the “floor”. This means that employees dismissed without cause are “at least” entitled to those minimums. However, at law, employees are entitled to more than the minimums.

• To create an enforceable termination clause limiting the employee to the minimums in the Code, it must be drafted specifically to state that the employee is, indeed, limited to those minimums.

The Court of Appeal concluded that the termination clause (above) did not clearly and unambiguously limit the employee to the minimum notice periods set out in the Code

The clause simply stated that the termination notice period “will be in accordance” with the Code. It didn’t say the employee “was limited to” the minimums in the Code.

So, what's the big takeaway for HR Managers?

If you’re going to draft a termination clause in your employment contracts, make sure the clause is clear and you have the magic “limiting” words.

Or, better yet, invest in the ounce of prevention by having an employment lawyer draft those magic words for you. It might just save you from dealing with the pound of cure later on.

Darren Schmidt is a lawyer at Stringam LLP’s Lethbridge and Fort McMurray offices. He maintains a focus of employment and labour law and has a pre-law background as a human resources practitioner.

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Written by Darren Schmidt