18 Sep As an employer, why should I include a termination clause when drafting my Employment Agreements?
As an employer, you are responsible for every contract your employees’ sign, whether they are agreeing to new terms, commencing their employment, terminating their employment etc. An extremely important contract that each individual employee is certain to receive is an Employment Agreement. There are many components to the Employment Agreement that are tailored to both the employment and termination process. One of the key factors of accepting employment is how an employee will be treated once their contract has been terminated. This information is provided in the termination clause.
The termination clause outlines the course of action the employer is assuring the employee when their contract is terminated. The clause outlines factors like severance, amount of notice, and/or pay in lieu of notice that the employer is promising to provide the employee.
According to the Employment Standards Act, 2000 (ESA), the termination clause does not legally need to provide more than the mandatory minimum. For example, if an employee only works for less than one year, the minimum amount of notice the employer may provide is one week. The mandatory minimums established by the ESA must be provided to employees terminated “without cause”, however, those terminated “with cause” are not entitled to termination notice or pay in lieu of notice. Further, the employer is not limited to only providing the mandatory minimum. If they believe the employee is qualified to receive more compensation, they may offer a longer notice period or a more generous pay in lieu of notice.
Why should an employer include a termination clause?
The purpose of creating a termination clause is to solidify notice, pay in lieu of notice, and severance so the employee cannot be misled about the promised amount. When an employee signs their Employment Agreement, they are acknowledging and agreeing to the terms of their termination clause outlined. This mutual agreement provides certainty for both the employer and employee moving forward in their employment relationship.
However, it is possible for a termination clause to be unenforceable. As stated above, the clause must meet the ESA’s mandatory minimums, and further, it must be properly drafted. For example, the clause may be deemed unenforceable even if the employer uses language that is too vague and unclear. It is recommended to have an employment lawyer create the termination clause so that it cannot be invalidated in a court of law.
When an employee receives their termination contract, they can receive legal advice as to whether the termination clause is fair based on their age, years of employment, and position. If the termination clause is not well-drafted, the employee can file a Wrongful Dismissal claim to negotiate further compensation or notice.
It is important for employers to recognize that even though there can be issues that arise from a drafted termination clause, not including this clause can create an even greater disadvantage for the employer.
If you are an employer who requires help with drafting a valid termination clause, please contact KCY at LAW by filling in an online consultation request or contact us by phone at 905-639-0999 to book your consultation today.