A contract conflict is any dispute among the participants over the agreement’s provisions and obligations.
Contractual disputes are usually the result of a contract breach. It occurs when a company or employee fails to fulfill a commitment they acknowledged in the agreement. There are two sorts of violations in commercial contracts: substantial and minor violations.
Termination provisions specify the conditions under which an agreement could be terminated. In some areas, they’re referred to as “break provisions.”  Termination provisions define obligations to terminate an agreement for specific causes in the corporate world. The typical examples include:
- Contract breach, and specifying the violation level that must be met to end the agreement, such as “voidable contract,” “major misconduct,” or “severe violation,”
- Insolvency of one of the parties
- The occurrence of sudden Majeure
What Is the Termination Clause?
A termination provision in an employment agreement aims to overturn the legislative precedent that the worker will be given fair notice of termination. The provision substitutes it with a probationary period that the employer and employee have agreed upon. The termination clause usually includes a predetermined notice period or a procedure for estimating the notification time based on the worker’s years of service. The termination clause will state what incentives and variable remuneration to provide during the notice period.
Employers increasingly include termination clauses in their contractual arrangements to lower the expense of dismissing their workers’ jobs. The termination clause enables the company to end the worker’s contract by offering a compensation payout that is much less than what the worker would receive if the employer was forced to provide written notification of termination. A termination provision has the advantage of ensuring that an employee’s rights are protected in the event of dismissal.
A judge will not impose a termination clause until it compensates the worker with the minimum constitutional rights upon termination, as mandated by the Ontario Employment Standards Act, 2000 or the Canada Labor Code for government-regulated workers. Even if the worker has willingly agreed to take a lesser amount, it is prohibited for a company to offer less than the basic standard of the ESA or Codes.
Many employment agreements in Ontario have termination terms that provincial courts will not implement as they aren’t properly structured. Companies are expected to have their termination terms examined by a knowledgeable employment lawyer due to the high rate of unlawful termination terms. It can be an expensive error to have workers sign contractual agreements that feature improperly designed termination terms.
Employees shouldn’t assume that their employment agreement’s termination provisions are enforced.
Types of Termination Clauses
The following are the two main types of termination clauses:
1. Cause Termination
Dismissal for default happens when one of the contracting companies “defaults.” This indicates that they neglected to complete a task for which they were responsible. These provisions allow the agreement to be cancelled if the contractor underperforms particular or general agreement tasks.
A dismissal for cause provision is when termination occurs before one of the employees makes a mistake, like when a project goal is missed or when personal details or paperwork is not provided. When a contract specifies explicit scenarios under which the agreement would be cancelled, it can be quite straightforward when someone wants to end the arrangement.
2. Termination For The Sake Of Convenience
Although first employed only in government agreements, these convenience clauses have also grown more common in commercial agreements. A convenience provision enables the company to terminate the agreement at any point and cause.
When one party wants to terminate the relationship, this is referred to as a “breach of contract.” Nevertheless, if a dismissal for convenience provision is incorporated, one party may be permitted to terminate the agreement for any reason. It’s affectionately known as a “construction prenup” as it creates a contract with a simple way out.
Contracts Of Employment And Reasonable Termination Notices
When a worker is fired without a valid reason, they are presumed to be entitled to adequate termination notice under statutory law. The only exception is if the participants have entered into a legitimate agreement outside of the statutory law.
Employers frequently try to keep employee termination benefits to the bare minimum allowed by the ESA. However, section 5 of the ESA expressly bans opting out of any baseline requirement unless a better privilege or reward is provided.
In the Machtinger case, the SCC decided that a no-fault termination clause that doesn’t comply with the ESA is illegal, and the employee is subject to statutory notice. Employers are encouraged to develop compliance agreements rather than benefiting from illegal clauses.
The ONCA has strictly implemented Machtinger in the past few years. Throughout the Wood v Fred Deeley Imports Ltd case, the court decided that any termination term must unambiguously conform to the ESA when making the contract, not when the agreement is terminated. In the Covenoho v Pendylum Ltd case, the Judge concluded that every condition must meet the ESA in all case scenarios, even when the company provides the legal minimums. Magistrates must also understand termination provisions instead of breaking them down into their parts, as seen in the IBM Canada Ltd. v. Amberber case.
Although the legislation on no-fault dismissals is relatively unambiguous, the importance of phrases determining termination for “just cause” is a less-discussed topic. Many employment agreements indicate that no warning shall be given under certain cases. Employees will not get ESA dismissal or layoff compensation if they are responsible for wrongful conduct, disrespect, or intentional carelessness that is not negligible and hasn’t been tolerated by the company.
According to many arbitral tribunals, this standard is more burdensome for companies than just cause since it suggests intended or deliberate behaviour. At least 2 Superior Court rulings have concluded that a worker who was fired for a good reason was still given benefits. Another effect is that a clause indicating that a worker wouldn’t be notified of “dismissal with cause” could be unenforceable since it ignores instances in which an employer proves just cause other than intentional misbehaviour.Â
Waksdale vs. Swegon: A Perfect Example of Unfair Termination
Benjamin Waksdale served as the Head of Sales for Swegon North America Corporation, an HVAC firm, for eight months. In October ’18, he was fired without a valid reason. The company, citing its work contract, gave him 28 days’ warning, which was a week longer than Waksdale’s minimal ESA claim. Separate termination provisions for firing with and without reason were included in the agreement. It also included a recusal clause, which said that if any provision of the agreement was found to be illegal, the remainder of the deal would be preserved. Despite this, Waksdale filed an unfair dismissal lawsuit, saying that the agreement was void and claiming compensation for 6 months. Both sides filed a motion for a quick verdict in the case.
Superior High Court: Separately Examine Dismissal Terms
Judge Morgan denied Waksdale’s allegations in the case. The sides concluded that the no-fault clause was legal. Swegon company admitted that the “with cause clause” was unconstitutional as it violated the ESA. The plausible answer is that the court didn’t account for the “deliberate misbehaviour” criterion in legal dismissals.
Waksdale asserted that the unconstitutional section made the entire employment agreement void. Swegon responded that the phrase “with cause” was meaningless since the two sections worked separately, and Waksdale was fired without reason. Alternately, the unconstitutional clause could be removed.
Justice Morgan ruled in favour of Swegon, finding that the “with cause” clause didn’t apply until the company pursued a dismissal for a reason. There’s no requirement to separate a freestanding provision because the two clauses were independent and didn’t affect one another. This indicated that the no-fault clause was still in effect and that the company had fulfilled its contractual agreements.
A Termination Term That Contradicts The ESA Is Invalid And IllegalÂ
In Machtinger v. HOJ Industries, the High Court concluded that if a work contract includes a termination rule that gives a worker a privilege apart from prior notification upon dismissal, that privilege must be equivalent to the worker’s obligation under the ESA. Suppose the dismissal provision compensates the worker for less than their ESA rights. In that case, the court will remove the provision from the contractual agreement and give the worker adequate notice of termination.Â
In the case of Machtinger, the invalid severance provision gave the worker two weeks’ written notice of termination. However, under the law in effect at the time, the worker was subject to four weeks’ warning. The court found that workers fired without reason are obliged to prior notification of their dismissal under common law. If the employment agreement clearly states a different duration of warning notification, the presumption will be debunked.Â
Why Is It Necessary to Have Termination Provisions?
While we go any further, let’s answer a quick query: Why are termination provisions required in the first place? Shouldn’t the opposing side, who didn’t break the agreement, be entitled to terminate it instantly if one side breaks it?
Nevertheless, it isn’t always easy to comprehend. Not all contractual breaches are created equal, and it can be challenging to determine if a violation is minor or major when the issue isn’t addressed in the agreement. What a client considers a mountain may appear to you as a molehill. A termination provision can be extremely useful in removing ambiguity from these scenarios.
Final Thoughts
The Waksdale case serves as a cautionary tale that the court system will consider the totality of an employment agreement when interpreting it. Even if the existing contract has a severability provision, a legitimate “without reason” dismissal clause may not be effective if other sections in the contract violate provincial employee rights.
The key is for someone considering a job opportunity to thoroughly read and comprehend the employment agreement before signing it. Before joining the firm, they may be able to discuss a suitable termination clause with their hiring manager. Another alternative is to have an expert employment lawyer evaluate the employment contract to see if the termination condition is legal. Suppose an employee accepts an offer letter that includes an applicable termination provision. In that case, they must be aware of what they agree to.
Hire Trustworthy And Reliable Lawyers
It is critical to select skilled lawyers to represent you in court. Although the possibilities of your case going to trial are slim (just one out of every ten lawsuits goes to trial), it’s critical to have competent legal representation to assist you through the legal procedure. Dealing with civil lawsuits necessitates a great deal of knowledge and skills. Ensure that the lawyers you pick have the necessary experience to assist you with your lawsuit.
If you’ve recently been fired from your job without reason and you’re planning to hire a professional lawyer, contact Nanda and Associate Lawyers. We have a team of experienced lawyers that handle complicated termination clause claim cases.
Nanda & Associate Lawyers is a boutique law firm located in Mississauga. It was established in 2003 by a team of highly experienced and qualified lawyers. The group specializes in various legal areas, including immigration law, family law, business law, real estate law, wills and estates, civil litigation, and personal injury law.
The company is known for its non-discrimination policies and providing high-quality counsel to people of all backgrounds and ethnicities in Canada.
Nanda & Associate Lawyers are experts in various practice areas, including immigration, business, wills & estates, family, and civil litigation. Regardless of race or ethnicity, every client receives the same level of service from their staff. Compared to their competitors, the firm’s success rate is significantly higher.
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Disclaimer:Â This blog is only intended for educational purposes and shouldn’t be used as a substitute for legal advice.
