BC Court of Appeal Clarifies Enforceability of Termination Clauses in Employment Agreements

In Egan v. Harbor Air Seaplanes, 2024 BCCA 222, the BC Court of Appeal found that a termination provision in an employment agreement was sufficient and enforceable, rejecting arguments that it was too ambiguous or statutorily non-compliant.

Overview

In this case, an employee was terminated without cause in 2020 due to the economic downturn caused by the COVID-19 pandemic. The employer is a federally regulated business governed by the Canada Labour Code (the “CLC”). The employer relied on the following termination clause to limit the employee’s entitlement to two weeks of salary in lieu of notice and five days of severance pay in accordance with the CLC:

“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.”

At summary trial, the employee argued the above clause was unenforceable because it was either (a) too ambiguous in defining his termination entitlements, or (b) allowing the employer to change their employment conditions by not continuing the employee’s benefits during the statutory notice period, contrary to the CLC. However, the summary trial judge found the termination clause was not ambiguous and was sufficient to rebut the presumption of common law notice. The employee appealed the decision. 

The Court of Appeal dismissed the employee’s appeal, but for different reasons than the summary trial judge. The Court agreed with the judge’s conclusion but applied a different approach to contractual interpretation—a “practical, common-sense approach.”

Clause too ambiguous?

The employee argued that the termination clause was unenforceable because it was too ambiguous and therefore did not rebut the presumption of reasonable notice. The Court rejected this argument.

Parties may displace the presumption of reasonable notice if the termination provision in a contract of employment clearly specifies “some other period of notice.”  The issue for the Court was whether a termination clause specifies “some other period of notice” when the clause simply referentially incorporates statutory notice provisions (using language like “in accordance with [statute]”), but does not expressly limit the entitlement to the minimum statutory notice (e.g. “in an amount limited to…”).  

Here, the employee tried to argue that s. 230(1) of the CLC does not clearly fix his entitlement to the minimum two weeks’ notice due to the words “at least” in s. 230(1)(a). In essence, he was claiming that this made the termination clause ambiguous.

The Court did not agree that the “at least” language in s. 230(1)(a) of the CLC rendered the clause ambiguous.  Employers can create enforceable termination provisions by incorporating the requirements of the applicable employment standards legislation. The Court distinguished case law in Ontario due to varying employment standards legislation in that jurisdiction.  In British Columbia, no specific phrases are required to create a “ceiling” sufficient to rebut the common law presumption. “In accordance with” or “as required by” the statute are sufficiently clear to rebut the presumption.

The Court also found the “practical, common-sense approach” to contractual interpretation requires reading the employment contract in its entirety, including surrounding circumstances and facts. Courts must determine enforceability of a termination provision at the time the agreement was executed.  At the time this employee entered into the employment contract, he knew his entitlement on termination was governed by the CLC.  

Key takeaways for employers 

This is a favourable decision for employers in British Columbia, particularly due to the Court’s
“common sense approach” to contractual interpretation of employment contracts.

The Court of Appeal confirms that a termination provision that clearly references the relevant employment standards legislation sufficiently displaces the common law presumption of reasonable notice. This means that employers in British Columbia do not necessarily need to expressly convert the statutory minimum into a ceiling by using phrases like “no more than” or “only” the statutory amount. Employers should review their employment contracts regularly and ensure that statutory references are accurate and current.

This case also highlights the distinction between the enforceability of termination provisions in British Columbia and other jurisdictions in Canada, such as Ontario. Employers operating in multiple jurisdictions should be mindful of the different standards.

For questions about this topic or any other workplace law matters, please reach out to Scott Marcinkow or a member of our Workplace Law team. You can also explore more insights by browsing our latest blog posts here.