



COURT OF APPEAL FOR ONTARIO

CITATION: Nemeth v. Hatch Ltd., 2018 ONCA 7

DATE: 20180108

DOCKET: C63582

Sharpe, Benotto and Roberts JJ.A.

BETWEEN

Joseph Nemeth

Plaintiff (Appellant)

and

Hatch Ltd.

Defendant (Respondent)

Dorian N. Persaud and Stephanie Pope, for the appellant

William D. Anderson, for the respondent

Heard: November 29, 2017

On appeal from the judgment of Justice Thomas R. Lederer,
    dated March 2, 2017, with reasons reported at 2017 ONSC 1356.

EMPLOYMENT  Employment standards  Termination
    clause  Notice  Displacement of common law rights  Termination clause may
    displace an employees right to common law notice without an express
    stipulation to that effect.

L.B. Roberts J.A.
:

[1]

The appellant appeals from the dismissal of his action for damages
    arising out of the termination of his employment without cause, following his
    motion for summary judgment.

[2]

The appellant was employed by the defendant for just over 19 years when
    his employment was terminated. The defendant gave the appellant 8 weeks notice
    of termination, paid him 19.42 weeks salary as severance pay, and continued
    his benefits, including his pension benefits, during the 8-week notice period. This
    was consistent with the appellants minimum entitlements under the
Employment
    Standards Act, 2000
, S.O. 2000, c. 41 (the 
ESA
), and reflected
    the defendants interpretation of the termination clause in the appellants
    employment contract.

[3]

The termination clause provides as follows:

The Companys policy with respect to termination is that employment
    may be terminated by either party with notice in writing. The notice period
    shall amount to one week per year of service with a minimum of four weeks or
    the notice required by the applicable labour legislation.

[4]

The appellant submits that the motion judge erred in failing to find
    that:

i. the appellant
    retained his rights to common law notice because the termination clause does
    not contain express language excluding entitlements under the common law; and

ii. the termination
    clause is void under s. 5(1) of the
ESA
because it purports to
    contract out of the appellants statutory entitlement to severance pay by the
    absence of any reference to this entitlement.

[5]

In the alternative, the appellant submits that the motion judge erred in
    failing to consider the appellants alternate argument that he is entitled to
    one weeks notice for every year of employment under the termination clause, with
    the result that he should have received 19 weeks notice.

[6]

I shall consider each of these arguments in turn.

(i)

Is it necessary to include an explicit stipulation in a termination
    clause in order to displace the common law?

[7]

I do not agree that the appellant retains his common law entitlement to
    notice on termination of his employment because the termination clause does not
    explicitly state that the parties intent is to that effect.

[8]

The well-established presumption is that on termination, an employee is
    entitled to common law notice; however, this presumption may be rebutted if the
    contract of employment clearly specifies some other period of notice, whether
    expressly or impliedly, provided that it meets the minimum entitlements
    prescribed under the
ESA
:
Machtinger v. HOJ Industries Ltd.
, [1992]
    1 S.C.R. 986, [1992] S.C.J. No. 41, at p. 998. That said, the intention of the
    parties to displace an employees common law notice entitlement must be clearly
    and unambiguously expressed in the contractual language used by the parties:
Wood
    v. Fred Deeley Imports Ltd.
, 2017 ONCA 158, 134 O.R. (3d) 481, at para. 40.

[9]

The need for clarity does not mean that the parties must use a specific
    phrase or particular formula, or state literally that the parties have agreed
    to limit an employees common law rights on termination. It suffices that the
    parties intention to displace an employees common law notice rights can be readily
    gleaned from the language agreed to by the parties.

[10]

The
    appellant relies upon three recent decisions from the Ontario Superior Court of
    Justice for the proposition that the clause must expressly stipulate that it displaces
    an employees common law notice entitlement in order to effectively do so:
Singh
    v. Qualified Metal Fabricators Ltd.
, 33 C.C.E.L. (4th) 308 (S.C.);
Nogueira
    v. Second Cup
, 2017 ONSC 6315, [2017] O.J. No. 5456; and
Amberber v.
    IBM Canada Limited
, 2017 ONSC 6470, [2017] O.J. No. 5587.

[11]

I
    do not read these cases as standing for the appellants proposition, which is inconsistent
    with the governing jurisprudence. In my view, the Supreme Court in
Machtinger
,
    at pp. 1004-1005, made it very clear that the kind of specific, express
    language advocated by the appellant is not required:

Absent considerations of unconscionability, an employer can
    readily make contracts with his or her employees which referentially
    incorporate the minimum notice periods set out in the [ESA] or otherwise take
    into account later changes to the [ESA] or to the employees notice entitlement
    under the [ESA].
Such contractual notice
    provisions would be sufficient to displace the presumption that the contract is
    terminable without cause only on reasonable notice
. [Emphasis added.]

[12]

While
    the parties are free to express their agreement in language of their choice, a
    high degree of clarity is required and any ambiguity will be resolved in favour
    of the employee and against the employer who drafted the termination clause in
    accordance with the principle of
contra proferentem
:
Miller v. A.B.M. Canada Inc.
, 2015
    ONSC 1566, 27 C.C.E.L. (4th) 190, at para. 15 (Div. Ct.);
Ceccol
    v. Ontario Gymnastic Federation
(2001), 55 O.R. (3d) 614 (C.A.),
    at para. 45. As this court recently reiterated in
Wood
, at para. 28:

Termination clauses should be interpreted in a way that
    encourages employers to draft agreements that comply with the ESA. If the only
    consequence employers suffer for drafting a termination clause that fails to
    comply with the ESA is an order that they comply, then they will have little or
    no incentive to draft a lawful termination clause at the beginning of the
    employment relationship:
Machtinger
, at p. 1004.

[13]

In
    consequence, if employers do not make clear the parties intention to displace
    common law notice, they cannot complain if the fruits of their drafting are
    found to be ambiguous and unenforceable.

[14]

It
    is clear from the plain language of the termination clause in the present case that
    the parties intended and agreed to limit the appellants common law notice
    entitlement. The clause clearly specifies some other period of notice that
    meets the minimum entitlements prescribed under the
ESA
:  it contemplates
    the appellant receiving one week per year of service with a minimum of four
    weeks or the notice required by the applicable labour legislation. It cannot
    be said that the appellant retained his common law entitlements in the face of
    this explicit language, which denotes an intent to the opposite effect.  I
    agree that there is no ambiguity that the parties intended and agreed to
    displace the appellants common law notice entitlement. Whether they agreed to
    limit it to the minimum entitlements under the
ESA
is a question to
    which I return later in these reasons.

(ii)

Is the termination clause void because it purports to contract out of
    the
ESA
?

[15]

With
    respect to the second argument, I do not accept that the silence of the
    termination clause concerning the appellants entitlement to severance pay
    denotes an intention to contract out of the
ESA
. I agree with the
    motion judges conclusion that the termination clause purports to limit notice but
    not the severance pay that the appellant would receive on termination. This is
    a very important distinction.

[16]

As
    such, this case falls within
Roden v. Toronto Humane Society
(2005), 259
    D.L.R. (4th) 89 (Ont. C.A.), and is entirely distinguishable from
Wood
,
    for the reasons noted in the latter by Laskin J.A., at paras. 53 to 55:

53      In
Roden
, the termination clause in issue
    stated that the employer, The Toronto Humane Society, could terminate the
    employment of the plaintiff Roden "upon providing the Employee with the
    minimum amount of advance notice or payment in lieu thereof as required by the
    applicable employment standards legislation": see para. 55. Roden made the
    same argument as Wood: the termination clause contravened the ESA and was void
    because it failed to include The Toronto Humane Society's obligation to
    continue its contributions to Roden's benefit plans during the notice period.

54
Gillese
    J.A., writing for the panel, rejected this argument. In her view, the
    termination clause was simply silent about The Toronto Humane Society's
    obligation to continue to contribute to Roden's benefit plans. The clause did
    not contract out of an employment standard and thus was not void. She wrote, at
    para. 62:

The without cause provisions in
    question are of precisely the type that Iacobucci J. says are valid: they
    referentially incorporate the minimum notice period set out in the
Act
.
    The without cause provisions do not attempt to provide something less than the
    legislated minimum standards; rather, they expressly require the Society to
    comply with those standards. As I have said, in my view, the provisions do not
    purport to limit the Society's obligations to payment of such amounts. That is,
    they do not attempt to contract out of the requirement to make benefit plan
    contributions. Because the contracts are silent about the Society's obligations
    in respect of benefit plan contributions, the Society was obliged to   and did
     comply with the requirements of the Act in that regard.

55
The
    difference between
Roden
and this case lies in the wording
    of each termination clause. In
Roden
, the clause dealt only with
    The Toronto Humane Society's obligation to give the notice of termination, as
    required by the ESA, or to pay Roden a lump sum for the notice period. It did
    not exclude The Toronto Humane Society's additional obligation to continue to
    contribute to Roden's benefit plans during the notice period. It said nothing
    about that obligation.

[17]

As
    a result, I am of the view that the termination clause in this case does not provide
    less than the minimum severance obligations under the
ESA
, and is not
    void pursuant to s. 5(1).

(iii)

Does the termination clause entitle the appellant to 19 weeks notice on
    termination of his employment?

[18]

I
    agree that the appellant was entitled to receive 19 weeks notice under the
    termination clause.

[19]

I
    do not accept the respondents submission that the motion judges dismissal of
    the appellants action means that he considered the appellants argument on
    this point and rejected it. The motion judges reasons do not explicitly address
    the interpretation of the termination clause from the perspective of the
    appellants alternate argument.

[20]

However,
    even if the motion judge did consider this argument, I am of the view that at
    best, the termination clause gives rise to two possible interpretations  one
    that would limit the appellants notice entitlement to the minimum prescribed
    by the
ESA
; the other that would not. As this court recently stated in
Wood
, at para. 28: Faced with a termination clause that could
    reasonably be interpreted in more than one way, courts should prefer the interpretation
    that gives the greater benefit to the employee.  As a result, the correct
    interpretation of the termination clause would have been the one most favorable
    to the appellant that does not limit the appellants notice entitlement to the
ESA
minimum.

[21]

With
    these principles in mind, I am of the view that the second sentence of the
    termination clause provides that the appellant is entitled to receive one
    weeks notice for every year of service. It is not limited by the subordinate
    clause following the preposition with.  Rather, the words a minimum of four
    weeks or the notice required by the applicable labour legislation prescribe
    the minimum floor of the appellants notice entitlement under the agreement, in
    order that the notice provision of one week per year of service does not run
    afoul of the minimum requirements of the
ESA
.

[22]

There
    is no language restricting the appellants entitlements to
only
the minimum notice stipulated under the
ESA
.
    If the respondent had wished to include such a limitation, it was free to draft
    the termination clause differently, using language that converts the statutory
    floor into a ceiling:
Machtinger
, at pp. 1005, quoting from
Suleman
    v. British Columbia Research Council
(1989), 38 B.C.L.R. (2d) 208, at p.
    214. It did not do so.  As a result, the termination clause provides for a
    maximum notice period of one week per year of service. The notice owing under
    the clause cannot fall below the statutory minimum, but, depending on the length
    of the employees service, it might meet or exceed the statutory minimum.

[23]

For
    these reasons, I conclude that in accordance with his employment contract, the
    appellant was entitled to receive 19 weeks notice of the termination of his
    employment.

Disposition

[24]

Accordingly,
    I would allow the appeal in part, set aside para. 2 of the order, and order
    that the appellant is entitled to compensation for an additional 11 weeks, plus
    interest.

[25]

In
    my view, the appellant is entitled to costs reflecting his partial success on the
    appeal, as well as the costs of the motion below. I would fix the appellants
    costs on the appeal and the underlying motion in the total amount of $20,000,
    inclusive of disbursements and applicable taxes.

Released: January 8, 2018

L.B. Roberts J.A.

I agree Robert J. Sharpe J.A.

I agree M.L. Benotto J.A.


