MIKAILA MAURO
BRITISH COLUMBIA – A termination clause is a term of an employment agreement that sets out how an employment relationship can be terminated as well as the parameters on what happens when termination occurs. It is a critical tool that can save employers considerable time, money and hassle down the road.
There are generally three ways an employment relationship can be terminated: an employee can voluntarily resign, an employee can be dismissed for cause, or an employee can be dismissed without cause. An employee who voluntarily resigns has made the decision to leave their employment. Whereas an employee who is dismissed for cause has had their employment unilaterally terminated because their conduct was that of serious misconduct, habitual neglect of duty, incompetence, repeated willful disobedience, or dishonesty of a degree incompatible with the employment relationship. Generally, the conduct must be such that it undermined or seriously impaired the trust and confidence the employer was entitled to place in the employee in the circumstances of their particular relationship.[1] In these first two ways that employment can be terminated the employer has no further obligations owed to the employee. In the last scenario, where an employee is terminated without cause, an employer must provide working notice or payment in lieu (or a combination of the two) of the termination. This is often referred to as severance.
There are two main governing bodies that can determine what amount of severance is owed: the Employment Standards Act[2] (the “Act”) and civil Courts. The Act, sets out the bare rights and minimums of what is required, providing a prescribed calculation of one week’s notice after three consecutive months of employment, two weeks’ notice after twelve consecutive months of employment, and three weeks’ notice after three consecutive years of employment plus one additional week for each additional year of employment to a maximum of eight weeks’ notice. Conversely, the Courts do not provide a calculation.
The Courts hold that an employer is obligated to give a certain amount of reasonable notice to allow the terminated employee to continue earning income while seeking new employment. This can be provided by way of working notice or payment in lieu. What amount is “reasonable” depends on a variety of factors including the employee’s age, length of service, position held, and employment market at the time of termination. This is a non-exhaustive list of factors, which are referred to as the Bardal factors[3]. The Courts will look at all the circumstances and weigh each factor in determining what is warranted for a reasonable notice period. Where an employer does not provide reasonable notice, they run the risk of a terminated employee bringing an action for wrongful termination. Without terms governing an employee’s entitlements on termination an employer could then owe more than twenty months of severance based on Bardal factors and depending on the circumstances of each factor.
While including a termination clause can aid in limiting an employer’s potential liability, not every termination clause is enforceable and there are many reasons why Courts have declined to uphold them. One requirement to secure a clause is that it must provide at least the entitlements prescribed under the Act at the time it is agreed upon but also contemplate potential changes to the Act. Where a termination clause provides less than the minimum entitlements under the Act it will not be enforced. Additionally, the clause must be clear and unambiguous, using an objective formula with precise language that allows the employee to determine their severance entitlements. A well-drafted termination clause will demonstrate clear intention and understanding of the employer and employee to limit the applicability of entitlements through civil Court.
In light of the potential risks with a wrongful termination claim, it is advisable that employer’s implement a written employment agreement with a well drafted termination clause to help control costs and reduce claims of wrongful termination.
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[1] McKinley v. BC Tel et al., 1999 BCCA 308
[2] RSBC 1996 c.113
[3] Bardal v. Globe & Mail Ltd., 1960 CanLII 294 (ON SC)
