termination clause, employment contract

Why Does My Employment Agreement Have a Termination Clause?

Employment contracts are fundamental to the relationship between an employee and their employer. They outline employee and employer expectations, solidify the agreement to employ a particular person, and in some cases, provide clauses for things that may happen down the line.

 

Some employment contracts will include a termination clause, which will set out the expectations of the employer if that employee is terminated from their position. Termination clauses can be beneficial to the employee in some cases, but in others, they may limit the rights of the employee who has been terminated. In still other cases, the termination clause will not be enforceable for a number of reasons.

 

This article will help you understand why you should be paying close attention to termination clauses, either as an employee or an employer.

 

What is an employment contract?

 

An employment contract sometimes called an employment agreement, is a contract that is signed when an employee is hired. The employment contract may touch on a wide range of matters, from the job’s working hours and expectations to clauses about the rate of pay and termination entitlements. 

 

In some jobs, the work has started before an employment agreement is presented. If this is the case, that job will be governed (in Ontario) by the rules of the Employment Standards Act, 2000 (“ESA”). The ESA sets out minimum requirements that employers must adhere to when it comes to their workplace and the treatment of employees. 

 

All employees, unless they are unionized, will be governed by the ESA. Employment contracts may expand upon the rights given to them by the ESA and otherwise change the expectations that their employer has, but the employment contract cannot impair any rights of their employees under the ESA.

 

What is a termination clause and what does it do?

 

A termination clause is a clause that sets out the expectations for both parties if the employee is terminated. It may tell the employee exactly what to expect from a potential severance package, or it may specify that the employee is limited to the notice and termination pay set out by the ESA. Without a clause limiting their entitlements, that employee could otherwise ask for more notice or more payment in lieu of notice based on the common law.

 

From the employer’s side, it almost always benefits employers to limit what employees can claim when they are terminated. Including a termination, the clause can prevent employees from claiming large sums and can protect your company from large payouts.

 

However, not all termination clauses will be enforceable. Just because it is included in a contract that is signed by both parties does not mean it will automatically be upheld by a court. If a termination clause is unclear or limits the rights of an employee below the minimum standards of the ESA, the courts will usually find that the clause void and unenforceable.  

 

Similarly, any unclear wording in an employment contract will be held against the employer and may be considered to be unenforceable. This means that employers should be careful that they are taking the time to review their employment contracts with a lawyer to ensure that they won’t run into issues trying to enforce any parts of it.

 

I’ve been terminated and my employer is trying to enforce a termination clause — what do I do?

 

If you are facing termination and your employment agreement limits your rights when it comes to severance pay, make sure to reach out to a lawyer for more information. There is a chance that the termination clause in your contract may be unenforceable, and by hiring a lawyer, you may be able to get what you deserve.

 

Similarly, if you are facing a constructive dismissal where you have resigned due to a change in your job and you are trying to claim severance pay, a termination clause may be found to be unenforceable. This is because a lawyer can argue that your employer has not upheld their side of the employment contract, and therefore the whole contract is unenforceable.

 

What should I know as an employer writing employment agreements?

 

If you are an employer who is drafting employment contracts, it is very important to make sure that your contracts are clear, easy to read, and in line with the standards laid out in the ESA. If your contracts are unclear or include clauses that cannot be upheld by the courts, you could face a situation where the courts choose not to recognize anything in the contract.

 

In general, it is always a good idea to have a lawyer either draft or review your employment contracts before you have your employees sign them.

 

Conclusion

 

Termination clauses included in employment contracts can serve to benefit both the employer and the employee if it is written well and is in line with other laws in Canada. However, sometimes termination clauses will limit an employee’s ability to claim severance pay. Other times, that clause will be unenforceable due to an error in the writing or in the contract as a whole.

 

If you are an employee who has been affected by a termination clause, make sure to reach out to a qualified employment lawyer to find out what can be done for your situation.

 

If you are an employer who wants to make sure that their termination clauses are upheld in their employment contracts, make sure to have a qualified employment lawyer review your contracts to catch any potential errors. 

 

Contact Us

 

If you are an employer or an employee with questions about termination clauses, our team of experienced employment lawyers at Achkar Law can help. Contact us by phone toll-free at 1 (800) 771-7882 or email us at [email protected], and we will be happy to assist. 

 

If you are a small or medium-sized company looking for full-service support with a same-day response, visit our Chief Legal Officer Program page for our strategic solutions.