Alberta Court of Appeal Judge Questions the Judicially Approved Principles for Interpreting Termination Clause in Employment Contracts

In a recently released decision, the Alberta Court of Appeal considered yet another case where a dismissed employee argued the termination provision in their contract should be of no force or effect, and the employee should be entitled to common law notice. In this appeal the only issue was whether the employment contract limited the amount of severance to one week.

The key language from the employment contract was:

2(2): In the event we wish to terminate your employment without just cause, we agree that we will give you notice of 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.

Following the existing case law, the court found that the words, “in accordance with the Act” were not sufficient to limit the required notice to the minimums set out in the Employment Standards Act, and the employee was entitled to common law notice. The court contrasted this wording from the wording of a contract in another employment contract case stating, “at any other time, without cause, upon providing the employee with the minimum amount of advanced notice or payment in lieu of thereof as required by the applicable employment standards legislation”. The court stated that in contrast, “here, the first section of section 2(2) lacks such explicit, restrictive language.

The most notable point of the case was the dissenting judgment. Justice O’Ferrall concurred in the result reached by the majority because the chambers judge correctly applied “judicially approved principles governing the interpretations of employment contracts”. However, he goes on to question those principles. His analysis mirrors the thoughts of many employers receiving the advice that their employment contracts are deficient in some respect when it is obvious what it means. He states, “A lay person reading the entire termination provision of the contract (which is reproduced and appended to the reasons) might be forgiven for thinking that the parties did intend to “limit” termination notice or pay in lieu of such notice to the “minimums” set forth in the employment standards legislation, even though the parties failed to employ either of the quoted words of limitation. A reasonable observer might question why the parties needed a termination clause as lengthy and detailed as the one employed in this case to merely indicate their intention to be governed by the common law’s reasonable notice requirement”. Perhaps the best quote of the decision is when he questions these legal principles which have created such complexity when typically the interpretation of a contract is merely understanding the parties’ mutual intentions. He states at paragraph 41:

“Whether small business employers and their employees ought to be required to wade through mountains of jurisprudence in order to find the magic formula needed to achieve an enforceable contract language is what is being questioned here.”

In summary, while this is only a dissenting judgment, and the case stands to confirm the existing law, it may signal the beginning of a re-examination of the law that presently strikes down provisions that appear clear and unambiguous but where the employer didn’t follow the “magic formula”.

Related Practices