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In Egan v. Harbour Air Seaplanes LLP, 2024
BCCA 222, the British Columbia Court of Appeal
(BCCA) upheld a lower court's decision that a termination
clause in an employment agreement was enforceable because it was
neither ambiguous nor non-compliant with the Canada Labour
Code (CLC).
This is an important decision for employers in British Columbia and federally regulated employers. It provides a foundation for arguing that the overtly plaintiff-friendly Ontario approach to termination clauses (Waksdale, Duffault) does not have application in British Columbia or under the CLC. Harbour Air may also provide a foundation for a persuasive argument in other provinces.
Background
On March 30, 2020, a federally regulated business governed by the CLC terminated an employee's employment without cause due to a downturn in business caused by the Covid‑19 pandemic.
The employee's employment contract contained the following termination clause, which incorporated by reference the notice and severance provisions of the CLC (Termination Clause):
The [employer] 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.
The employer paid the employee his salary for two weeks in lieu of notice, and five days of severance pay, in accordance with the CLC.
Decision of Summary Trial Judge
The employee made a claim for wrongful dismissal, seeking reasonable notice at common law. He argued that the Termination Clause was unenforceable because (1) it was ambiguous; or (2) it allowed the employer to change the employee's employment conditions by not continuing his benefits in the period of pay in lieu of notice, contrary to the CLC. The summary trial judge did not accept these arguments and dismissed the employee's claim.
Decision of the BCCA
The employee appealed the summary trial judge's decision to the BCCA.
The BCCA dismissed the appeal, finding that although the trial judge's approach to contractual interpretation was flawed, it made no difference to the outcome because a proper interpretation of the Termination Clause led to the same conclusion, namely that because the Termination Clause was neither ambiguous nor non-compliant with the CLC, it could rebut the presumption of reasonable notice.
Ambiguity
The BCCA framed the question before it as "whether a termination clause that referentially incorporates statutory notice provisions but does not expressly limit an entitlement to the minimum statutory notice (i.e., does not convert the statutory floor to a ceiling) clearly specifies 'some other period of notice'."
The court referred to the existence of controversy around the question. It noted that decisions in British Columbia have found that termination clauses providing for notice "in accordance with" or "as required under" British Columbia's Employment Standards Act (BC ESA), are sufficiently clear to rebut the presumption and are therefore enforceable. The BCCA acknowledged, however, that some decisions in Ontario and Alberta required a termination clause to clearly state the parties' intention to limit an employee's notice entitlement to the minimum statutory period "by using words that convert 'the statutory floor to a ceiling'." The court distinguished these decisions on the basis that the applicable legislation used the phrase "at least" when referencing statutory entitlements.
The BCCA noted that when the employee entered into the employment contract, he was aware that on termination his entitlements would be governed by the CLC, which provided a minimum two weeks' working notice or two weeks' wages in lieu of notice. Furthermore, the court did not take the position that the only way to rebut the presumption of reasonable notice is by incorporating statutory notice requirements by reference. It stated that while employers are entitled to insert clauses in an employment contract that effectively convert "the statutory floor into a ceiling," they can also insert clauses that specify another period of notice by incorporating the requirements of the applicable employment standards legislation, which may provide for something more than the minimum standard. The BCCA emphasized, however, that in either case, the parties "must do so with clear and unambiguous contractual language" and their intentions "must be assessed by applying the practical, common-sense approach to contractual interpretation." The court stressed further that the employee's approach of "disaggregating the words in a termination clause looking for ambiguity as a means to find the clause unenforceable," is inconsistent with "[p]roper contractual interpretation that seeks to determine the true intentions of the parties..."
The BCCA noted that some cases confirm that a general reference in a termination clause to the applicable employment standards legislation is sufficient to displace the common law presumption of reasonable notice in British Columbia and under the CLC. It stated that in British Columbia, termination clauses providing for notice "in accordance with" or "as required under" the BC ESA are sufficiently clear to rebut the presumption and are therefore enforceable. The CLC, as it was for the purposes of the appeal (i.e., before it was amended), took a hybrid approach pursuant to which the phrase "at least" was incorporated with respect to working notice, but not with respect to the employer's option to provide two weeks' wages in lieu of working notice. Although the BCCA acknowledged that it could use a subsequent amendment to help it interpret the former provision, it did not believe the amendment in question provided a sufficiently clear indication of legislative intent.
The BCCA concluded that a termination clause that clearly reveals 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. Moreover, it stressed that specific words or phrases are not required. The court declared, "[i]n such circumstances it may properly be said that the parties have made a contract of employment which clearly specifies some other period of notice, thereby displacing the presumption" of common law reasonable notice.
The appeal court then analyzed the Termination Clause, which it found specifically required the employer to give to the employee a notice period other than common law notice, i.e., "appropriate notice and severance in accordance with the requirements of the Canada Labour Code": either a minimum of two weeks' working notice or a prescriptive two weeks' wages in lieu of notice, and severance pay of five days wages.
Non-compliance with the CLC
The BCCA found no basis on which it could find the that the Termination Clause was unenforceable as being non-compliant with the CLC.
The court considered the employee's argument that the Termination Clause was unenforceable because it permitted the employer to change the terms of his employment by paying him only his salary during the notice period, and not his bonus and other benefits contrary to the CLC, which prohibits an employer that has given CLC notice from reducing the employee's rate of wages or altering any other term or condition of employment.
The BCCA acknowledged that termination clauses can be unenforceable if they exclude benefits that an employer must pay during the notice period under the applicable employment standards legislation; however, it rejected the employee's argument on this issue. The court found that the Termination Clause's silence with respect to the employer's obligations regarding bonuses and other benefits could not be interpreted as permitting the employer to contract out of any statutory obligations; to the contrary, the Termination Clause obliged the employer to comply with the CLC's requirements in this regard.
As the BCCA found no basis on which it could find the that the Termination Clause was unenforceable, it dismissed the employee's appeal.
Bottom Line for Employers
Harbour Air will be welcomed by employers in British Columbia and federally regulated employers as it provides that termination clauses that referentially incorporate statutory provisions into an employment contract are sufficient to displace the common law presumption of reasonable notice, and specific words or phrases are not required.
Furthermore, the decision confirms that in British Columbia, a termination clause will not be presumed to be unenforceable when it is silent with respect to certain elements of an employee's entitlements upon termination of their employment. Rather, a termination clause will be unenforceable only when statutory obligations are expressly excluded.
In Ontario, as discussed here, the Court of Appeal held in Waksdale v. Swegon North America Inc., 2020 ONCA 391, that courts should consider whether an employment agreement is void and the employee is entitled to common law reasonable notice if any termination provision in the agreement violates Ontario's Employment Standards Act, 2000 (Ontario ESA). In contrast, Harbour Air provides that courts should not disaggregate the words in a termination clause to demonstrate that it is unenforceable.
Finally, as we noted here, in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, Ontario's Superior Court decided that under the Ontario ESA, an employer does not have "sole discretion" to terminate the employee's employment "at any time," as provided in the relevant termination clauses. Rather, the court held that the right of the employer to dismiss is not absolute as the Ontario ESA prohibits the employer from terminating an employee on the conclusion of their leave or in reprisal for attempting to exercise a right under the statute. In Harbour Air, however, the BCCA found that the applicable termination clause, which gave the employer the right to terminate the employee "at any time," was enforceable. This suggests that the courts in British Columbia may be resistant to the approach taken in Dufault.
It is important to note that Harbour Air is binding only within British Columbia, as the decision of one province's Court of Appeal does not bind the appeal courts of other jurisdictions. Harbour Air is also a significant decision for federally regulated employers in all Canadian jurisdictions.
Termination clause compliance is an area of law that is constantly evolving and is the subject of significant litigation. Employers are encouraged to seek the advice of experienced employment counsel to draft new employment contracts, and to review existing employment contracts to ensure their compliance. Employment contracts should be updated on a regular basis given the ever-changing state of the law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.