Benefits Continuation for the Federally-Regulated Employee and Enforceability of Employment Contract

There is no question that provincially-regulated employees who are terminated without cause are, at a minimum, entitled to have all benefits of their employment continued through the minimum notice periods prescribed by the Employment Standards Act, 2000 (the “ESA”) (see ss. 60 and 61 of the ESA).

Moreover, it is settled law that where the words of a termination clause in an employment contract fail to continue an employee’s benefits during the ESA minimum notice period, that the termination clause is unenforceable and the employee is entitled to reasonable common law notice of the termination of their employment. The foregoing is confirmed in the recent Court of Appeal decision in Wood v Fred Deeley, 2017 ONCA 158 and also in an earlier decision, Stevens v Sifton Properties, Ltd 2012 ONSC 5508.

An interesting question is whether a similar analysis could equally apply to employees who happen to be federally-regulated. For the purposes of this blog post it should suffice to remind the reader that while most employees in Canada are subject to provincial employment legislation, some employees (for example, those in the banking, telecommunications, air travel and railway sectors) are subject to the Canada Labour Code, RSC 1985 c L-2 (the “CLC”), legislation passed by the federal government. Thus, every non-unionized employee is protected by either their provincial employment legislation or the CLC if they are federally-regulated.

In many cases where a federally-regulated employee is terminated without cause, the CLC allows the employee to make an unjust dismissal complaint under s.240. Under this process, which is separate from the civil courts, the adjudicator may ignore any contractual provisions between employer and employee in determining what remedies the employee ought to receive.

In some situations, however, a federally-regulated employee may not be entitled to bring an unjust dismissal complaint, or it might seem a better option to bring a wrongful dismissal claim in the civil courts. One downside to bringing an action for wrongful dismissal in the civil courts as opposed to a complaint for unjust dismissal is that the employer may rely on termination provisions in an employment contract to limit an employee’s entitlements on termination.

Despite the foregoing, it should be the case that a termination clause in a federally-regulated employee’s contract of employment will be unenforceable if its wording does not continue all employee’s benefits during the minimum notice periods prescribed by the CLC. Specifically, sections 230 and 231 of the Canada Labour Code provide that where an employee is terminated without cause and has been continuously employed by the employer for three consecutive months, the employer “shall not thereafter reduce the rate of wages or alter any other term or condition of employment of the employee . . .“ for at least two weeks. Accordingly, it seems explicitly clear that at a minimum, federally-regulated employers must continue an employee’s benefits for two weeks after termination (provided of course the employee was consecutively employed for three months before termination).

What then would be the effect of a termination clause in a federally-regulated employee’s contract of employment that fails to provide the employee with benefits continuation during the two-week minimum notice period? In this author’s opinion, the jurisprudence relating to provincially-regulated employees and the enforceability of termination provisions is very persuasive and ought to equally apply to federally-regulated employees. In Wood v Fred Deeley, cited above, the Ontario Court of Appeal held as follows:

Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship: Machtinger, p. 1004

The same logic and public policy reasons which the courts have applied to termination clauses in the provincially-regulated context should equally apply to termination clauses in the federally-regulated context. Federally- regulated employers ought to face consequences that encourage compliance with the provisions of the CLC just as provincially-regulated employers are encouraged to comply with the ESA. This is achieved by rendering termination clauses that run afoul of the ESA or the CLC unenforceable and awarding the employee reasonable common law notice.

If you are a federally-regulated employee, you should speak with an experienced employment lawyer to get the right advice. Call Monkhouse Law today for a free 30-minute phone consultation.

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