There has been ongoing debate regarding the legality of termination provisions in employment contracts that comply with the Employment Standards Act, 2000 (“ESA“) at the time of termination but may potentially violate the law in the future. In the recent case Garreton v. Complete Innovations Inc., 2016 ONSC 1178 (CanLII), the court held that a termination provision in an employment contract is unenforceable if it would eventually lead to a breach of the ESA.
In Garreton, the employee was terminated after three years of service. Her contract provided for pay in lieu of notice in accordance with the ESA’s mandatory minimums. However, the contract also included a provision for pay in lieu of notice for employees with five or more years of service, which violated the ESA. The employee argued that the entire termination provision was void.
The court agreed, holding that a termination clause that would be void and unenforceable for an employee with more than five years of service must also be void for an employee with less than three years of service. In so holding, the judge emphasized that the employment contract must be considered at the time it is executed, not merely at the time of termination. If, at the outset, the termination provision does not comply with the notice and severance provisions of the ESA (where applicable), then it is void and unenforceable.
This decision is highly significant for both employers and employees. It underscores the importance of carefully drafting termination provisions in employment agreements. Employers should consult with a lawyer when drafting such agreements, and employees should seek legal advice before signing any employment contract containing a termination provision that could violate the ESA in the future.