Practical, Common-Sense Approach to Contractual Interpretation
Update by Angie Sung, Lawyer and Erin Brandt, Cofounder
In the past four years, clauses in employment contracts which limit a dismissed employee’s entitlement to severance have become significantly more difficult to enforce in Ontario (see our summary on Waksdale v Swegon North America Inc., 2020 ONCA 391).
Recently, the British Columbia Court of Appeal confirmed in Egan v Harbour Air Seaplanes LLP, 2024 BCCA 222, that British Columbia courts should take a practical, common-sense approach to contractual interpretation.
Background
Mr. Egan was employed by Harbour Air Seaplanes LLP (“Harbour Air”) for close to 3 years when his employment was terminated without cause on March 30, 2020 due to the Covid-19 pandemic. Harbour Air, relying on a termination clause in Mr. Egan’s employment agreement which referenced the requirements of the Canada Labour Code (the “CLC”), provided Mr. Egan with two weeks wages in lieu of notice and five days of severance pay.
Mr. Egan filed a legal claim against Harbour Air seeking additional severance. At trial, Mr. Egan argued that the termination clause in his employment agreement was unenforceable because:
It was ambiguous: section 230 of the CLC (as it was in force at that time) stated that a dismissed employee was entitled to at least 2 weeks notice in writing. Mr. Egan argued that this did not define with certainty his termination entitlement;
It allowed the employer to pay him only base salary in lieu of notice, excluding payments for bonus and benefits, which amounts to a change in his employment terms during the notice period contrary to section 231 of the CLC.
Decision
The trial judge rejected Mr. Egan’s arguments and dismissed his claim.
In response to Mr. Egan’s appeal, the British Columbia Court of Appeal found that the termination clause in Mr. Egan’s contract:
simply incorporated the notice and severance provisions of the CLC, effectively guaranteeing Mr. Egan the minimum statutory requirements;
clearly expressed the parties’ intention to displace the presumption of common law reasonable notice; and
did not exclude any benefits required to be paid pursuant to the CLC.
The Court of Appeal further commented that in interpreting contracts, courts should not “disaggregate the words in a termination clause looking for ambiguity as a means to find it unenforceable”.
As a result, the Court of Appeal found that there was no basis for concluding that the termination clause in Mr. Egan’s employment agreement was non-compliant with the CLC, meaning Mr. Egan wasn’t entitled to any additional severance from Harbour Air.
Key Take Away for Employees
The British Columbia Court of Appeal signaled that it will not be following Ontario’s lead of looking for ambiguities as a means to find termination clauses unenforceable. This means that in British Columbia, employees should carefully read their employment contract before signing and look for any reference that might limit their legal rights to statutory minimums.
Key Take Away for Employers
The “common sense” approach to contractual interpretation should provide some comfort to employers that British Columbia courts will likely limit an employee’s severance claim to statutory minimums where there is a properly drafted contract which clearly references the Canada Labour Code or the Employment Standards Act. And silence on an issue (such as payment of a bonus) will not automatically render a contractual termination clause unenforceable.
