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Is a Notice of Termination Contract Term that COULD Violate the ESA Void?: Part Deux

A recent decision of the B.C. Supreme Court raises again the question of whether a notice of termination clause in an employment contract is unlawful if it could possibly result in the employee receiving less notice than required by employment standards legislation.  The decision is almost certainly incorrect.  See if you agree.

First, recall that in a case called Machtinger v. HOJ Industries, the SCC ruled that a contract notice of termination clause that provides for less notice than the ‘minimum’ notice required by employment standards is void.  Because the notice term is void, the court will substitute the implied term requiring ‘reasonable notice of termination’, which is almost alway more than the ESA minimum, often significantly so.

Kelly v. Norsemont Mining (B.C. Supreme Court, 2013)

The new decision is called Kelly v. Norsemont Mining. The issue of whether the employer had cause to dismiss the employee with no notice consumes the first 90 paragraphs of the decision, but we needn’t concern ourselves with that.  In the end, the judge finds that contractthere was not cause, and therefore the employee was entitled to notice of termination.  The interesting issue is what that notice should be.  The contract included the following clause (see pg. 29):

“… either party may terminate this agreement at any time by giving the other party 30 days written notice.”

At the time Kelly was dismissed, he had been employed for 7 months, which entitled him to only 1 week’s notice under section 63(1) of the B.C. Employment Standards Act.  The judge ruled that the contract term was therefore not in violation of the ESA and was therefore enforceable:

“Under s. 63(1) an employee of seven months is entitled to notice or pay in lieu of one week. The contractual provision of one month’s notice therefore exceeds the minimum standard in the Act. Mr. Kelly, who acted without counsel, appears to have incorrectly relied on the maximum eight-week notice period provided for in the Act.”

Follow me so far?  Anyone see any problems with this reasoning?

Onwards.  Now, remember an Ontario case I described a while back called  Wright v. Rubicam Group. In that case, the Ontario Superior Court of Justice ruled that a contract notice term that could feasibly, in the future, have violated the Employment Standards minimum notice requirements is void, even if at the time the employee is dismissed, the contractual notice term did not violate the ESA.  The employee in Rubicam was entitled to 10 weeks (notice plus severance) under the ESA, and the contract term required the employer to give him 13 weeks’ notice, which was given.  Therefore, the contract term provided for a greater period of notice than the ESA, at the time the employee was fired. However, at some point in the future, had the employment continued, the contract term could have entitled the employee to less than the ESA requirements.  That’s because under the ESA, notice (and severance) entitlements go up over time until the reach a cap.

In Wright v. Rubicam, the Court relied on a decision of the B.C. Court of Appeal called Shore v. Ladner Downs(1998) for the point that a contract notice term is unlawful and void if  at some point in the future, it could fall short of the minimums in the ESA.   The Court of Appeal in Shore said that it was dealing with case of ‘first impression’, meaning that the issue hadn’t been raised before.  It defined the issue as being whether a contractual term that could at some point in the future provide for less than the ESA should be held to been voidfrom the beginning or should be held to become void only when the statutory requirement rises above the period fixed by contract. The Court of Appeal answered this way:

The policy considerations applied in (the Supreme Court of Canada’s decision in ) Machtinger… would not be served if the contract were to be interpreted in favour of the employer so as to leave the individual employee responsible for determining, at the point of termination, whether the statutory minimum had risen above the notice period stated in the contract.  It is neither reasonable nor practical to leave the individual employee in the position of having to keep an eye on the relationship between the statutory minimum and the contractual term.

The Trouble With Kelly

So, where does this leave us?  Recall that, in Kelly, the contract required 30 days notice of termination. Could that clause feasibly have put Kelly in a situation in which he would have received less notice under the contract than required by Section 63 of the B.C. ESA?

The answer is yes, isn’t it?  After 5 years, he’d have been entitled to at least 5 weeks’ notice under s. 63, right?  Five weeks is less than ’30 days’ required by the contract.  The judge was bound by Shore v. Ladner Downs, the Court of Appeal decision.  However, the judge doesn’t consider the Shore case or reasoning at all. Possibly, it wasn’t argued. Kelly (the employee) represented himself, always a risky venture.

Post-Script:  The  Kelly v. Norsemont Mining case is interesting for another reason.  The judge ordered the employer to pay the employee $100,000 in punitive damages, on the basis that the employer breached “its implied obligation of ‘good faith and fair dealing’!  The grounds involved threats to force Kelly into bankruptcy if he pursued his lawsuit, and alleging fraud as a grounds for dismissal without any merit.

I have to say that it would not surprise me if this case is appealed, and if so, that: (1) the punitive damages are reduced or even set aside; and (2) reasonable notice is ordered, because the judge wrongly found that contract notice term was enforceable.

Questions for Discussion

Do you think Kelly v. Norsemont Mining was correctly decided?  Will it be overturned (if appealed)?  On what basis?

Do you the a notice of termination clause in a contract should only be voided if it violates the ESA at the time of dismissal?  Or do you agree with the other decisions that find that it is void from the outset if it is possible to imagine a scenario where it would violate the ESA?



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