A recent case dealt another blow to the utility of “saving clauses” to rectify drafting errors in employment contracts. The Court in Groves v. UTS Consultants Inc. found a clause ostensibly supplanting the employee’s right to reasonable notice of termination was unenforceable and the intention to contract out of the common law was not salvaged by a saving clause that would have limited the employee to Employment Standards Act (Ontario) minimum notice. The Groves case adds its voice to a line of Ontario jurisprudence on this point, including the Court of Appeal case of Rossman v. Canadian Solar Inc.
This article will explain the Court’s decision in Groves that the saving clause did not fix the employer’s drafting error.
The plaintiff, Wayne Groves, founded the defendant company, UTS Consultants, in 1992. In 2014, he sold the company to an outside investor. The sale included an arrangement whereby Mr. Groves would remain with the company as an employee.
The Termination Clause
Mr. Groves’ 2014 employment agreement contained a complicated termination clause, which provided for (among other things) four weeks’ pay for every year of service, where the years of service were to be calculated from the date of the new employment agreement and specifically excluded any prior service with the company before the share buyout.
At trial, the Court found the substance of the termination provision was inconsistent with Ontario’s Employment Standards Act. The Act mandates that, when an employer sells a business and continues to employ a worker, the calculation of the worker’s length of service and consequent notice entitlement shall include the prior service. The legislation does not permit parties to contract out of this requirement. Mr. Groves’ termination provision explicitly excluded prior service from the length of service and was therefore unenforceable.
The Saving Clause
The termination provision included a typical saving clause, which stated: “Notwithstanding the foregoing, the Company guarantees that the amounts payable upon termination, without cause, shall not be less than that required under the notice and severance provisions of the Employment Standard Act (Ontario).”
UTS Consultants argued that this saving provision salvaged the intention of contracting out of the common law requirement to give reasonable notice of termination. The Court rejected that position: “When the employer has sought to contract out of the [Employment Standards Act], a saving provision cannot be used to rewrite the express language in an agreement to cause it to comply” (para 61). Having specifically stipulated that prior service would not be considered for the calculation of any notice entitlement, using the saving clause to limit Mr. Groves to the statutory minimums would have amounted to re-writing the contract’s express terms. In this circumstance, the saving clause did not permit the Court to “read up” the defective provision to bring it into compliance with the Act.
In the result, Mr. Groves was entitled to a whopping 24 months’ notice of termination.
This decision could significantly restrict the utility of saving clauses in employment contracts, but it does not mean companies should never include them in their contracts. Sometimes saving clauses can save the day, as indicated in Amberber v. IBM Canada Ltd., which gave effect to a saving clause and which the Groves case distinguished but did not dispute. Nevertheless, it is clear that employers are better off making sure their termination clauses are enforceable without reliance on a contractual safety net.