Et Tu, Federally Regulated Employers? Ontario Court Confirms That Termination Clauses That Violate the Canada Labour Code Will Not Be Enforced

November 30, 2020

In its recent decision, Sager v TFI International Inc., the Ontario Superior Court of Justice considered whether a termination clause was enforceable at law. The Sager decision is one of the first reported decisions in Ontario to consider the enforceability of a termination clause that is governed by the Canada Labour Code (the “CLC”), the legislation that governs all federally regulated employers. The vast majority of earlier Ontario cases that considered the enforceability of termination clauses dealt with contracts that were governed by the Ontario Employment Standards Act. As such, federally regulated employers (such as retail banks) should take note: if their employment contracts contravene the CLC, they too may be subject to further scrutiny by the courts in Ontario.

The Facts

The plaintiff, Jean-Marc Sager, was 49 years old when he was terminated after two years and nine months of service at Loomis Express, a subsidiary of the defendant, TFI International Inc. (“TFI”). TFI is an international transportation and logistics company, and at the time of his termination Mr. Sager held the position of Vice-President of Sales and Customer Care at Loomis Express. Mr. Sager’s compensation consisted primarily of a base salary, but his contract also provided for certain benefits in addition to his salary, including a car allowance, participation in a group insurance plan and pension plan, and participation in a bonus program. There was a dispute at trial as to whether Mr. Sager was induced to leave secure employment in France to join Loomis.

The employment contract that Mr. Sager signed upon his hiring contained a termination clause, which contemplated that Loomis could terminate his employment without cause by giving him the greater of three months’ base salary or one month of base salary per year of completed service, to a maximum of twelve months. The contract also explicitly stated that the “payment shall be inclusive of any and all requirements” that would be owing to Mr. Sager under the CLC.

The Decision

It is important to note that there is no scenario in which the termination and severance payable under the CLC would exceed the termination pay required under Mr. Sager’s contract. That is, the CLC only provides an employee with two weeks of statutory notice, and the minimum statutory notice and severance requirements are somewhat less generous than those required by Ontario’s provincial employment standards legislation. Because Mr. Sager was employed with TFI for less than three years, under the CLC he would have been entitled to only two weeks’ termination pay plus five days of severance pay, for a total of fifteen days’ pay.

That said, in determining whether the termination clause in Mr. Sager’s contract was enforceable, the issue before the court was not the entitlement to statutory notice and severance pay. Instead, the court was required to consider whether the termination clause is inconsistent with Section 231(a) of the CLC because it fails to maintain all of Mr. Sager’s wages and terms or conditions of employment during the notice period. In that regard, Section 231(a) of the CLC provides that, where notice of termination has been given to an employee, an employer cannot “…thereafter reduce the rate of wages or alter any other term or condition of employment of the employee to whom the notice was given except with the written consent of the employee.”

The Court ultimately held that the termination clause in Mr. Sager’s employment contract was not enforceable because it purported to limit his entitlement to bonus, pension and group insurance benefits, and car allowance for the two-week period following his dismissal. In arriving at its conclusion, the Court noted the following at paragraph 19:

The termination clause of Mr. Sager’s contract intends to limit TFI’s obligation to a single lump sum payment. The clause does not say that it is intended to be inclusive of the statutory requirements for severance and termination pay only. It says the lump sum payment is inclusive of all requirements under the CLC. If the lump sum payment is treated as inclusive of all requirements under the CLC, it excludes any payment on termination for Mr. Sager’s pension, car allowance or bonus, which were all the terms and conditions of Mr. Sager’s employment. It would also exclude the continuation of Mr. Sager’s benefits during the notice period. In my view, the meaning of the agreement it clear: Mr. Sager was entitled to a payment equal to three months of his base salary and nothing more during the notice period. This amounts to a change in Mr. Sager’s terms of employment during the notice period, which is inconsistent with s. 231(a) of the CLC.

After determining that the termination clause in Mr. Sager’s employment contract was not enforceable, the Court held that he was entitled to nine months of notice based on all of the relevant factors. In particular, the Court determined based on the relevant evidence that Loomis gave Mr. Sager assurances of long-term employment with significant advancement opportunities in the short-term in order to induce him to accept employment. However, the Court also noted that the effect of the inducement on the notice period was tempered by the fact that Mr. Sager had formed the intention to leave France before the negotiations with Loomis started. In determining that the appropriate notice period was nine months, the Court also drew many comparisons to the facts in this case to those in the seminal decision of Love v. Acuity.

The Court also awarded the contractual benefits, car allowance and RRSP contributions he would have earned over the course of the nine-month notice period, as well as damages for the bonus amount Mr. Sager would have received for the time he actually worked before his July 2019 termination and the notice period thereafter.

Key Takeaways:

The Court’s recent decision in Sager is of particular significance for the following reasons:

It is one of the first reported decisions to come out of the Ontario courts that considers the enforceability of a termination clause governed by the CLC; and

Even though the termination clause provided the employee with an entitlement that was more generous than what he would have received under the employment standards legislation, the Court declined to enforce the termination clause on the basis that it purported to exclude the continuation of some relatively minor compensation and benefits over the notice period.