Termination Clause Update: New Developments Concerning Benefit Continuation And Just Cause Language

We are not long into 2019 and yet one thing already seems clear - the law concerning employment contract termination clauses will continue to be the focus of a great deal of litigation in Ontario. In just the past few months alone, new decisions from the Superior Court have helped to advance the law and provide further guidance to employers on proper drafting of termination clauses.

Selective and conditional benefit continuation is illegal

A requirement of the Employment Standards Act, 2000 ("ESA") is that upon dismissal from employment, an employee's benefits must be continued for at least the minimal period of time specified by statute. This ranges from 1-8 weeks, depending on the length of the employee's service.

Despite the ESA being quite clear with respect to the benefit continuation requirement, some employers adopt termination clauses that attempt to either cut out certain types of benefits immediately upon dismissal (most often short- and long-term disability) or make continuation of benefits conditional on the approval of a third party (i.e. an insurer). The conditionality requirement typically stems from the fact that many benefits insurers have historically been unwilling or uncooperative in providing coverage to employees past their termination date (and when their employment is no longer "active").

The recent decision of Cormier v. 1772887 Ontario Limited c.o.b. as St. Joseph Communications, 2019 ONSC 587 addressed the consequence of these type of benefit drafting decisions head-on. Unfortunately for the employer, the Court had no time for its termination clause (which both limited benefits upon dismissal and imposed a conditionality requirement).

In reviewing the situation, Justice Perell noted:

The problem, however, for St. Joseph's Communications is that while some aspects of the termination clause found in the 2012 employment contract were unobjectionable, the treatment of the employee's benefits during the notice period were contrary to the Act. There was a fatal flaw, an Achilles' heal so to speak, in the 2012 agreement making its termination clause void and unenforceable.

To be more precise, the termination clause in the 2012 employment contract purports to allow St. Joseph Communication upon termination to provide Ms. Cormier with only some of the employee benefits that she received before termination and even then, only subject to the consent of St. Joseph Communication's insurers. With respect to the employee...