Essentials: Contract Law and Employment Standards Minimums

Update by Parmvir Padda, Lawyer and Erin Brandt, Cofounder

The termination clause in an employment contract is the clause most often argued over once an employment relationship comes to an end. In Machtinger v HOJ Industries Ltd, [1992] 1 SCR, 7OR (3d) 480 (“Machtinger”) the Supreme Court of Canada considered the consequences of a poorly drafted termination provision and answered the following question: if a termination clause in an employment contract provides a period of notice less than what is required by the Ontario Employment Standards Act (the “Act”) what is an employee who is dismissed without cause entitled to?   

Background

Mr. Machtinger and Mr. Lefebvre were employees of HOJ Industries Ltd. (“HOJ”) for about seven years when they were both terminated from their employment.

At the time of hiring, Mr. Machtinger and Mr. Lefebvre had both entered into employment contracts with HOJ, and each contract contained a termination provision that provided less notice than what was required under the Act. Upon dismissal, HOJ paid both Mr. Machtinger and Mr. Lefebvre four weeks’ salary. Mr. Machtinger and Mr. Lefebvre commenced a legal action and sought damages for wrongful dismissal.

Decision

The guiding common law principle is this: where an employee has an indefinite term employment contract and is terminated without cause, an employer must provide an employee with reasonable notice. Reasonable notice is determined by factors such as age, character of employment, length of employment and availability of similar employment (also called the Bardal factors).

In Machtinger, the Supreme Court of Canada re-affirmed the common law principle that reasonable notice is the presumption, unless an employment contract specifically says something else (see Prozak et al v. Bell Telephone Co. of Canada, 1984 CanLII 2065 (ONCA)). However, an employment contract must meet, at the very least, the minimum standards set out in the Act.

The Supreme Court of Canada found that Mr. Machtinger and Mr. Lefebvre’s employment contracts were null and void since they contracted out of the Act’s minimum requirements. Where a termination clause is null and void, the common law principle of reasonable notice prevails.

Key Take Away

Machtinger is an important reminder to employers to review the termination provisions in your employment contracts and ensure they meet the requirements of the employment standards legislation in the provinces where you operate. Statutory minimum requirements are designed to protect employees, and an employment contract that fails to incorporate those minimum requirements could result in hefty consequences.