A Deal’s A Deal – Why Following Your Termination Clause is Critical

A Deal’s A Deal – Why Following Your Termination Clause is Critical

Greg Dobney
Posted May 11, 2021 Category: Businesses

Over the past year, much has been written about termination clauses and the importance of ensuring that these clauses are properly drafted so that they do not violate the minimum requirements of the Employment Standards Act, 2000 (the “ESA”).  However, a recent case serves as a reminder that it is also important to actually follow those clauses when terminating the employment relationship. 

It is not uncommon for an employer to want a Release of claims from an employee when terminating the employment relationship.  This is understandable; a Release gives an employer peace of mind that the employee will not raise any claims in the future. However, something of additional value needs to be provided in exchange for a Release – a Release cannot be required simply in exchange for providing an employee with their contractual entitlements. If an employer tries to avoid paying the entitlements under their employment contract, for example by requiring the employee to sign a Release in order to receive the contractual entitlements, the employer risks losing the ability to rely on those termination clauses entirely.

Introducing: Peretta v. Rand A Technology Corporation.[1]  In this case, the employee, Ms. Peretta, had signed an employment contract with Rand that limited her entitlements on termination “without cause” to two (2) weeks’ notice or pay in lieu of notice on top of her applicable entitlements under the ESA.  This termination clause was valid in that it complied with the ESA by providing more than the statutory minimums.  However, when actually terminating Ms. Peretta’s employment, Rand required that Ms. Peretta sign and return a Full and Final Release (and agree to other terms) in order to receive her additional two (2) weeks’ pay.  If Ms. Peretta refused, she would only receive her ESA minimum entitlements. This position was communicated not once, but twice to Ms. Peretta.  Ms. Peretta did not agree to Rand’s terms and sued.

You might think that Rand was responsible for paying the extra two (2) weeks that was due to Ms. Peretta.  Nope! The Judge found that Rand, by demanding that Ms. Peretta sign a Full and Final Release (and agree to other terms) as preconditions to receiving the additional pay, demonstrated an intention to no longer be bound by the employment contract.  That is, Rand repudiated the contract and therefore the termination provision within that contract was not enforceable.  Ms. Peretta was entitled to reasonable notice at common law, which the Judge assessed at six (6) months.  This is in contrast to the seven (7) weeks that (would have) applied under the termination provision.

Although it is not the focus of this blog, the Judge also would have invalidated the without cause termination clauses in the contract pursuant to the reasoning in the Court of Appeal’s decision in Waksdale v. Swegon North America Inc. (see previous blog post here).  

While there has been recent emphasis on getting the written language in termination clauses right, it is equally important to ensure that the clauses are followed when the relationship is ending.  Whether you need assistance with preparing or updating employment contracts or support in the process of terminating an employment relationship, Cunningham Swan’s Labour and Employment Group is here to help. 

[1] 2021 ONSC 2111.

Greg Dobney
Posted May 11, 2021 Category: Businesses

Newsletter Signup

Sign up for our Newsletter

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.