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Employment Agreement – terms for future terminations

I’ve seen a lot of employment agreements. Some are very involved and use legalese while some are basic and more of a welcome to the organization. Because no one wants to think of the end when an employment relationship is just beginning, a lot of times termination clauses are not included. Down the road, though, a termination clause may make a difficult situation a bit smoother.

In PEI, we have the PEI Employment Standards Act that outlines how much notice or pay-in-lieu of notice is required when an employee is terminated. The provision in the Act is a minimum; that’s it. Ontario has severance pay provisions in their legislation but that is the only province where it is laid out. Other provinces rely on common law and severance is determined more or less case by case.

Many employers think that stating in employment agreements or employee policies that if termination occurs legislation will be applied and that is sufficient. While it might seem that statement would be definitive beyond interpretation, this case is a great story of why it isn’t so simple. Bellini v Ausenco Engineering Alberta Inc., 2016 NSSC 237

The case is from May 24, 2016, and was heard in Halifax, NS. As a background, the NS Labour Standards Code is the equivalent of PEI’s Employment Standards Act. Of particular interest here, is to compare without-cause termination provisions between PEI and NS.

The PEI Employment Standards Act states in section 29 regarding Terminations:Photo source: http://www.freeimages.com/photographer/shho-68363

“Except where an employer has just cause to terminate an employee, and subject to subsection (2), an employer shall not terminate or lay off an employee… without having given the employee at least (a) two weeks notice in writing, where the employee has been employed by the employer for a continuous period of six months or more but less than five years; …”

This is similar to Nova Scotia’s Labour Standards Code that states:

“[A]n employer shall not discharge, suspend or lay off an employee, unless [for just cause] without having given at least … two weeks’ notice in writing to the person if [their] period of employment is two years or more but less than five years.”

The NS and PEI legislation are similar; therefore the applicability of this case’s ruling should be considered a heads-up for PEI employers as well.

The employee’s successful argument focused on the words “at least” in the legislation, interpreted as meaning that severance is not limited to the legislated amount except in that the employer can pay no less than the amounts stated.

A comment from the Ontario Court of Appeal cited in the case notes the advantages of limiting notice by agreement as follows:

Establishing a pre-determined period of notice in the contract of employment has certain distinct advantages. Most notably, it provides certainty. From the employer’s perspective, it has the advantage of “capping” the period of reasonable notice that a court might otherwise award in a suit for wrongful dismissal. Likewise, from the employee’s perspective, it ensures a guaranteed entitlement that may be greater than that which a court would award under common law. For both parties, pre-determining the period of notice avoids the need for litigation to assess notice upon termination.

So, if you are considering writing an employment agreement, strongly consider writing in provisions for severance notice/payment that both meet the minimum requirements and will lessen the risk of being on the receiving end of unwanted legal action.

*Please note, this is not legal advice; it is general information. For specific advice, contact your trusted advisor.

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