by M. Norman Grosman
Many companies are moving towards the implementation of employment contracts today. They consider themselves to be among the informed and enlightened in so doing. Nevertheless, they often embark upon a program to implement employment contracts with some trepidation, wondering whether they can rely on the judicial system to enforce such bargains if the relationship should come to an end. These employers should, however, take some comfort from what appears to be a trend in legal decisions which reinforce the sanctity of employment contracts.
The Supreme Court of Canada created the foundation for the trend in its decision in Machtinger v. HOJ Industries Ltd. (1992), 91 D.L.R. (4th) 491 at p. 508,  1 S.C.R. 986 [*092128002 - 41 pp.], by stating, quite categorically, that:
Absent considerations of unconscionability, an employer can readily make contracts with his or her employees which referentially incorporate the minimum notice periods set out in the [Employment Standards Act] or otherwise take into account later changes to the Act or to the employees' notice entitlement under the Act. Such contractual notice provisions would be sufficient to displace the presumption that the contract is terminable without cause only on reasonable notice.
The Ontario Court of Appeal recently had occasion to consider the application of that principle in a context where the contractual notice period between the parties was stated as a minimum, and was arguably quite modest having regard to the senior level of the plaintiff's position, his age and length of service. In the case of MacDonald v. ADGA Systems International Ltd. (1999), 41 C.C.E.L. (2d) 5, 99 C.L.L.C.. 9[210-018 (Ont. C.A.) [*099026082 - I 0 pp.],John MacDonald was recruited to join ADGA, a professional consulting engineering company, after a 35-year career with the Canadian Air Force. On April 29, 1988, he signed an employment contract which contained a termination clause which included the following language [at p. 6]:
"In addition it is also agreed that either party to this Agreement may terminate this Agreement at any time by giving not less than one (I) month's prior written notice sent either by registered mail or bailiff."
The employment contract was for a two-year period and, as a result of ADGA's success in obtaining the award of a particular contract from the Department of National Defence, it was renewed in 1990 and again in 1992. In 1994, the defence contract was not awarded to ADGA, and MacDonald's errtployment was therefore terminated in June, 1994. He was provided with 13.2 weeks' compensation by the defendant but elected to sue for wrongful dismissal claiming an entitlement to 14 months' compensation. At trial, the defendant alleged that there was just cause for MacDonald's termination. The trial judge disagreed and, in reviewing the written employment contract, concluded that MacDonald was entitled to the 14 months' compensation he had claimed, stating [at p. 7]:
"In any event, I simply view that [the termination provision of the contract] as a base, an agreement by ADGA that, in fact, if Mr. MacDonald had performed so poorly, they wanted to let him go in the first few weeks, they would nevertheless owe him a month's pay. It does not, in any way create a ceiling, and I do not accept any suggestion that because a month is mentioned here, that the month should be taken as abase figure from which additions or subtractions can be made . . . [Emphasis added.]"
The Ontario Court of Appeal was asked by the defendant to review the contract issue. In so doing, the Court of Appeal relied upon the HOJ decision and ultimately determined that the contractual language in the MacDonald agreement rebutted the common law presumption of reasonable notice in the circumstances. The Court of Appeal in reaching this conclusion held [at p. 9]:
The MacDonald clause . . . does not, on a plain reading, conflict with any legislative entitlement. ADGA is required to give MacDonald not less than 1 month's notice. This does not contravene the duty to comply with the Employment Standards Act's minimal requirement of one week's notice per year of service, up to a maximum of eight weeks.
In this case, the common law presumption in favour of reasonable notice has been rebutted. There i s a clear- and clearly expressed- term providing for not less than one month's notice. Neither on its face, nor inferentially, does this term provide for a notice period less than that required by the Employment Standards Act, nor reflect an attempt to contract out of that requirement. Accordingly, the contractual term prevails over the common law presumption.
As a result, the Court of Appeal reversed the trial judge's award of 14 months' compensation and reduced that award to the one month contemplated by the written employment agreement. This decision, and others like it, should provide a greater sense of comfort to those employers who are tired of playing "reasonable roulette" and, as a result, are adopting a more proactive approach by preparing written employment contracts.
This article is excerpted from The Employment Bulletin.
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