A recent Ontario court decision reinforces the importance of having a well-drafted employment contract. In Bertsch v. Datastealth Inc., 2024 ONSC 5593, the Ontario Superior Court of Justice ruled that an employer’s termination clause limiting an employee’s severance to the minimum required under the Ontario Employment Standards Act, 2000 (ESA) was legally valid and enforceable. This case is a significant reference point for employers and a critical lesson for anyone reviewing or negotiating a job offer.
If you are unsure about your own contract, it is prudent to consult an Ontario employment lawyer to review an employment contract before signing or rely on a Toronto employment lawyer to help protect your rights.
The Court’s Approach: What Is a Rule 21 Motion?
The matter was decided through a Rule 21 motion — a legal mechanism that allows a court to address a question of law, such as the validity of a contract provision, without the need for a full trial. Since the parties had agreed on all the relevant facts and no additional evidence was required, the court could proceed with a legal determination.
Here, the employer requested the court to rule on whether the termination clause in the employment agreement was legally valid. A finding in favor of enforceability would limit the employee’s entitlements to only the minimum standards set out in the Employment Standards Act (ESA), excluding any additional common law notice.
The Employment Contract in Question
The employment agreement clearly specified that, in the event of dismissal—regardless of whether with or without cause—the employee would be entitled only to the minimum amounts mandated by the Employment Standards Act (ESA). This covered outstanding wages, vacation pay, notice or pay in lieu of notice, and, where applicable, severance and continuation of benefits.
Crucially, the contract also stated that these statutory minimums would take precedence over any common law rights the employee might otherwise have, which typically offer more generous notice periods.
The Dispute: Employee Claimed $300,000
Although the employee had worked for just eight and a half months, he challenged the validity of the termination clause and pursued a wrongful dismissal claim, seeking 12 months’ pay—around $300,000—as severance pay compensation. He argued that the wording of the clause was ambiguous and failed to clearly outline the employer’s duties under the ESA and its regulations, particularly in situations involving dismissal “for cause” that did not involve wilful misconduct.
Such claims as this are often raised by employees as a strategy to negotiate a more favourable severance package or to pursue additional damages following termination.
The Court’s Decision: Clear, Legal, and Enforceable
The court disagreed with the employee and confirmed that the contract was clear and did not violate the ESA or its regulations. The judge found that:
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The termination clause was clear and unambiguous.
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It did not attempt to contract out of ESA minimums.
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It clearly excluded common law notice.
The court noted that just because there is a power imbalance between employer and employee does not mean a legally enforceable contract clause becomes unenforceable.
What This Means for Employers and Employees
This ruling favors employers seeking to reduce termination costs by capping severance payouts at the minimum standards set by the Employment Standards Act. For employees, it highlights the potential risk of unknowingly signing away substantial common law entitlements when receiving a severance package.
Whether you’re offering a job or considering one, it is crucial to seek guidance from a knowledgeable employment lawyer in Toronto. A severance package lawyer or wrongful dismissal lawyer can clarify your employment contract’s implications and help you understand exactly what rights you may be relinquishing.
Final Takeaways
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Employers can enforce properly written clauses that limit termination pay to ESA minimums.
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A Toronto employment lawyer can help employers draft enforceable contracts and defend them in court.
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Employees should always have a lawyer review employment contracts before signing.
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Rule 21 motions offer a quick, cost-effective way to resolve legal questions about employment contracts.
If you recently lost your job or received an employment offer, do not guess your rights—consult an experienced employment lawyer who can help you understand what you may be entitled to and, if needed, negotiate your severance package effectively with the help of an Ontario wrongful dismissal lawyer.
For many employers, termination of employment is a difficult and confusing time, especially when it comes to drafting severance packages. Therefore, in a wrongful termination of employment, it is important for employers to consult with an experienced Ontario employment lawyer for a severance package review to understand the impact of wrongful dismissal on pension plans. If you are an employer or employee needing to speak with an experienced Ontario wrongful dismissal lawyer to discuss your options and next steps on how to deal with workplace issues, call Bune Law, employment law firm in Toronto. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.