In the decision of Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222 (“Egan”), the British Columbia Court of Appeal upheld a termination clause in an employment agreement, rejecting various arguments to undermine the clause’s validity.
Overview
The plaintiff’s employment was terminated without cause in 2020 due to the economic downturn caused by the COVID-19 pandemic. The employer relied on the following termination clause to limit the plaintiff’s termination entitlements to two weeks of pay in lieu of notice, pursuant to the Canada Labour Code (the “CLC”):
The Harbour Air group may terminate your employment at any time without cause so long as it provides appropriate notice and severance in accordance with the requirements of the Canada Labour Code.
At summary trial, the plaintiff argued the “Termination Clause” was unenforceable because it did not unambiguously define his termination entitlements and displace the presumption of common law notice, and allowed the employer to change his employment conditions by not continuing his benefits during the statutory notice period, contrary to the CLC. The summary trial judge rejected these arguments and dismissed the claim. On appeal, the plaintiff re-asserted his arguments against the Termination Clause.
While the Court of Appeal agreed that the summary trial judge had erred in interpreting the Termination Clause at the time of termination (rather than at the time of execution), the Court of Appeal nonetheless rejected the plaintiff’s arguments on the merits and dismissed the appeal, finding that the Termination Clause was enforceable and validly limited his termination entitlements.
Ambiguity
The plaintiff argued that the Termination Clause did not unambiguously remove his common law notice entitlement by merely referentially incorporating the statutory notice period, without expressly limiting the entitlement to the statutory minimum.
The Court of Appeal held the Termination Clause was not ambiguous. At the time the employment agreement was formed, the parties clearly intended, and the plaintiff knew, that his termination entitlements would be governed by the CLC. The Court noted that there is more than one way to rebut the presumption of reasonable notice at common law, and courts are required to assess the parties’ intentions by applying a “practical, common-sense approach to contractual interpretation”.
The plaintiff focused on statutory language suggesting the statutory minimum would only be “at least” what was required by law, thus rendering his entitlements ambiguous. However, the Court noted that proper contractual interpretation is “not accomplished by disaggregating the words in a termination clause looking for ambiguity as a means to find the clause unenforceable”. The Court noted that other cases have confirmed that a general reference in a termination clause to the applicable employment standards legislation is sufficient to displace the common law presumption in British Columbia and under the CLC. The Court distinguished its decision from case law in Ontario and Alberta where the employment standards legislation uses the words “at least” in reference to statutory entitlements, thus creating a “statutory floor” and requiring clear language to create a “ceiling” sufficient to rebut the common law presumption. However, the Court held that no specific words or phrases are required in British Columbia, such as “only”, “limited to” or “minimum”. Mere reference to “in accordance with” or “as required by” the statute are sufficiently clear to rebut the presumption in British Columbia. Moreover, the CLC, prior to amendments implemented by the federal government, used a hybrid approach where “at least” was incorporated in reference to working notice only but not in respect of the employer’s option to provide a fixed 2 weeks’ wages in lieu. A termination clause that clearly evinces an intention to incorporate the notice provisions of the employment standards legislation into the parties’ contract, which provide for “some other period of notice”, should be sufficient to displace the presumption of common law notice.
Illegality
The plaintiff further argued the Termination Clause was unenforceable for permitting the employer to pay him only his salary during the statutory notice period, and not his bonus and other benefits. The Court rejected this argument, finding that the Termination Clause effectively guaranteed the plaintiff all that was statutorily required. While the Termination Clause was silent on bonuses and other benefits, “this silence cannot be construed as permitting [the employer] to contract out of statutory obligations”. The Court distinguished this from clauses in other cases which expressly excluded statutory obligations and were therefore unenforceable.
The Court further noted that even if the employer failed to comply with the Termination Clause by not providing the bonus and benefits continuation, such a failure did not render the Termination Clause unenforceable, but rather constituted a breach of contract.
Notably, the Termination Clause also provided that the employer could terminate “at any time”. While this argument does not seem to have been before the Court, Egan could be helpful in demonstrating that the use of “at any time” is permissible in a without cause termination provision. If so, this would be helpful to employers, particularly in light of the recent Ontario Superior Court of Justice decision in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”), which found that a termination clause permitting termination “at any time” was offside statutory leave protections. While Dufault has been appealed and has not yet been followed in British Columbia, it is hoped that Egan will make it even less likely that British Columbia courts would find it to be an appealing argument.
Takeaways for Employers
This is a welcome, authoritative decision by the British Columbia Court of Appeal that embraces a “common sense” approach to contractual interpretation in employment law. The Egan framework, which provides that courts should not disaggregate terms in a termination clause to find the clause unenforceable, stands in stark contrast to approaches that have been taken in other provinces, particularly Ontario.
The Egan decision highlights that in British Columbia, a referential incorporation of employment standards legislation can be sufficient to rebut the common law presumption of reasonable notice, and there are no “magic words” required. Further, this case confirms that courts should not presume illegality where a clause is silent on certain aspects of termination entitlements. Illegality will arise where a contract expressly excludes statutory obligations, not where it remains silent on such obligations. Finally, the approval of a without cause termination provision that permits termination “at any time” suggests Dufault may face strong headwinds in British Columbia.
[View source.]
