Are Your Company’s Termination Clauses Enforceable?

When hiring a new employee or starting a new job, few of us imagine what will happen if that employment relationship ends. However, a properly drafted termination clause gives both the employer and the employee specific terms to rely on in the event that the relationship breaks down.

Nova Scotia Employers should review termination clauses following NSCA decision

In the wake of a 2017 decision from the Nova Scotia Court of Appeal, employers across Nova Scotia should be reviewing their termination clauses to ensure they are compliant with the Labour Standards Code, particularly for employees with over 10 years of service.

Labour Board found termination clause violated the Labour Standards Code

In Abridean International Inc v Bidgood, 2017 NSCA 65, an employee with over 10 years of service was terminated without cause and given eight weeks working notice. This was done in accordance with the termination clause in his employment contract, which allowed the employer to terminate the employment relationship at any time without cause by providing notice.

The Labour Board found that this type of termination clause violates section 71 of the Labour Standards Code (the “Code”), which states that employees with over 10 years of service may only be terminated for cause, and s. 6 of the Code which states that employers cannot contract out of the Code where the Code provides more favourable terms of employment.

Employers cannot contract out of the Code by specifying pay in lieu of notice

The Nova Scotia Court of Appeal upheld the Labour Board’s decision as both reasonable and correct under the Code, commenting that:

[64]   In this case, the effect of applying the termination provision in Mr. Bidgood’s contract would be to deprive him of the minimum protection provided to tenured employees under s. 71 of the Code.  A tenured employee is entitled not to be terminated without just cause (subject to certain exceptions that do not apply in this case).  Employers cannot contract out of this protection by providing for any period of notice or pay in lieu of notice for tenured employees dismissed without just cause: such employees are guaranteed continued employment in the absence of cause or an applicable exception under s. 72(3).  Thus, applying the termination provision in Mr. Bidgood’s contract would violate s. 6 of the Code.

What this means for employers in Nova Scotia

Terminating any employee is a difficult process for everyone involved. Employers must take the NSCA’s comments into account to ensure that the termination clauses in their contracts comply with labour standards requirements. The best way to ensure your employment agreements are up to date with the latest requirements in labour and employment law is to have them reviewed by legal counsel on a regular basis.

Do you have questions about whether your company’s employment agreements comply with provincial labour standards requirements?  Get in touch, we're happy to help.

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