Alberta Court of Appeal Rules on Termination Clause
In Holm v AGAT Laboratories Ltd, 2018 ABCA 23, the Alberta Court of Appeal (“ABCA”) interpreted a termination clause that purported to limit the employee to minimum entitlements under Alberta’s Employment Standards Code (the “Code”). The ABCA determined that the termination clause lacked sufficient restrictive language to limit the employee to termination notice or pay in lieu of notice under the Code.
Mr. Holm worked for AGAT Laboratories Ltd. His employment agreement included the following termination clause:
2(2) In the event we wish to terminate your employment without just cause, we agree that we will give you notice of the termination of your employment, or at our absolute discretion, we will pay you, in lieu of such notice, a severance payment equal to the wages only that you would have received during the applicable notice period. This will be in accordance with the provincial legislation for the province of employment.
2(3) You should realize that other than the foregoing notice, or at our absolute discretion wages only in lieu of such notice, you will not be entitled to any further compensation or notice arising out of the termination of your employment by us without just cause.
2(5) You understand and agree that other than the severance set out in paragraph 2(2) above, you shall not be entitled on the termination without just cause of your employment by AGAT to any other claim or compensation, damages, payment in lieu of notice, further notice of termination, or any other claim or compensation whatsoever, whether arising out of your employment by AGAT or the termination without just cause of your employment by AGAT.
Upon termination of his employment, Mr. Holm sued AGAT. The Chambers Judge found that the above termination clause did not contain sufficient language to limit Mr. Holm’s claim to the Code’s minimum notice requirements. AGAT appealed the decision of the Chambers Judge.
The ABCA confirmed the well-settled principle that the common law presumption of reasonable notice of termination can be rebutted with clear and unambiguous language setting out a different notice period. The issue in this case was whether the termination clause in Mr. Holm’s employment agreement sufficiently extinguished his common law rights.
The ABCA agreed with the Chambers Judge: section 2(2) of agreement failed to limit the notice period to the minimum requirements set out in the Code. Specifically, the first sentence stated that if AGAT provided pay in lieu of notice, the amount will be the wages that Mr. Holm would have received during the applicable notice period. This sentence failed to reference the Code and as such, lacked sufficient restrictive language. The second sentence stated that notice or pay in lieu of notice will be provided in accordance with the Code. But since civil remedies and greater benefits, as permitted by section 3 of the Code, are “in accordance” with the Code and this sentence did not clearly exclude such remedies, the ABCA found that the Code’s minimum notice requirement was not the only situation that would be “in accordance” with the Code. The ABCA concluded that section 2(2) of the agreement did not prevent Mr. Holm from pursuing common law reasonable notice.
The ABCA also agreed with the Chambers Judge that sections 2(3) and 2(5) of the agreement failed to include sufficient restrictive language to limit the entitlements provided in section 2(2).
Ultimately the ABCA found that the termination clause lacked sufficient language to limit Mr. Holm to the Code’s minimum notice requirements. At best, the ABCA said that the termination clause was ambiguous and should be resolved in Mr. Holm’s favour.
Holm is a good reminder of the importance of drafting clear and unambiguous termination clauses and the consequences of failing to do so. Any ambiguity in an employment agreement drafted by an employer will be resolved in favour of the employee. If you would like assistance drafting a termination clause to limit entitlements upon termination, please contact a member of our Labour and Employment Group.
notice of termination employment agreement