Transportation Employers Beware: The Ontario Superior Court Reviews the Enforceability of a Termination Clause under the Canada Labour Code

As many of our readers are aware, the Canada Labour Code, R.S.C., 1985, c. L-2 (the “Code”) governs the operations of federally regulated companies, including certain transportation companies who, because of the interprovincial nature of their operations, fall under the federal jurisdiction. As such, federally regulated transportation companies often try to limit employees’ termination entitlements under the Code to avoid greater obligations that may be owing under the common law.

It is not often that an Ontario court reviews the enforceability of a termination provision under the Code. Despite this, in a recent decision, the Ontario Superior Court did so. This decision is particularly important for federally regulated transportation companies as it provides guiding principles on properly limiting an employee’s termination entitlements to the minimum entitlements under the Code.

The Facts

In Sager v. TFI International Inc.,[1] the Plaintiff was employed as the Vice-President of Sales and Customer Care of the Defendant, a federally regulated, international transportation and logistics company. His employment was subject to a written employment agreement that limited his termination without cause entitlements to the greater of (i) three months’ base salary or (ii) one months’ base salary per year of completed service to a maximum of 12 months. The employment agreement further specified that the “payment shall be inclusive of any and all requirements” that would be owing under the Code.[2]

On July 31, 2019, the Defendant terminated the Plaintiff’s employment, without cause. In accordance with the terms of the employment agreement, the company provided the Plaintiff with a lump sum payment of three months’ base salary.

Following his termination, the Plaintiff commenced an action before the Ontario Superior Court alleging that the termination clause was unenforceable. For context, the Plaintiff likely commenced his claim before the Ontario Superior Court given his managerial status. For those who are not aware, “managers” do not have access to relief under section 240 of the Code, which allows non-managers to bring their termination related claims to a federally appointed adjudicator instead of a Court.

The Decision

In its decision, the court reaffirmed the common law presumption that employees will be given reasonable notice upon termination without cause. The court went on to note that this presumption can be rebutted if the employment contract clearly specifies some other period of notice, so long as the agreement complies with the minimum entitlements of the applicable employment standards legislation.

The court clarified that the issue in this case was not the Plaintiff’s entitlement to severance and pay in lieu of notice under the Code. Given the Plaintiff’s length of service (i.e. less than three years), there was no scenario in which his pay in lieu of notice and severance under the Code exceeded the termination pay entitlements under his employment agreement. Instead, the issue in this case was whether the termination clause complied with par. 231(a) of the Code, as it failed to maintain all terms and conditions of the Plaintiff’s employment during the notice period.

Ultimately, the court held that the termination provision was unenforceable because it limited the Defendant’s obligation to a single lump sum payment of only the Plaintiff’s base salary. This amounted to a change in the terms of the Plaintiff’s employment during the notice period, which was inconsistent with par. 231(a) of the Code.

Notably, the court referenced that the termination clause did not specify that the lump sum payment was intended to be inclusive of only the statutory requirements for severance and pay in lieu of notice. Instead, the lump sum payment was to be inclusive of all requirements under the Code. The provision excluded any payment on termination for the Plaintiff’s pension, car allowance or bonus – all of which were terms and conditions of the Plaintiff’s employment immediately before his termination.

Given the unenforceability of the termination provision, the court ultimately determined that nine months was the appropriate notice period. Further, the “damages” that the Plaintiff would have received during the nine-month common law notice period included his base salary plus the benefits, car allowance, bonus and RRSP contributions he would have earned during that period.

Key Takeaways

As noted above, this decision is particularly important for federally regulated transportation companies as it provides guiding principles on limiting an employee’s termination entitlements.  Specifically, employers must ensure that:

  1. Employment agreements are drafted in clear and unambiguous language;
  2. Termination provisions do not contract out of the Code’s minimum entitlements;
  3. Termination provisions maintain all terms and conditions of the employee’s employment during the statutory notice period; and
  4. Lump sum payments reflect the employee’s full wages (i.e. are not determined by the employee’s base salary alone, without reference to any other entitlements).

Our Transportation and Logistics Group regularly advises employers in respect of the enforceability of their employment agreements. Should you have any questions regarding the impact of this decision on your business, or wish to have your employment agreements reviewed, please reach out to Tim Lawson or Ben Aberant.

[1] 2020 ONSC 6608.

[2] Id, at para 2.

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