CASUAL LEGAL: Limiting Severance Obligations in Employment Agreements

Limiting Severance Obligations in Employment Agreements

By Sean Ward

Reynolds Mirth Richards Farmer LLP

AMSC Casual Legal Service Provider

Where an employee is terminated without just cause, they are entitled to certain minimum notice of termination (or pay in lieu of such notice) under the Alberta Employment Standards Code. Those minimum periods are based on an employee’s length of service, rising up to 8 weeks for an employee that has been employed for at least 10 years. However, they are also usually entitled to additional notice at common law. The period of that notice is subjective, based on factors including their age, position, length of service, and the availability of similar alternate employment.

That can result in very significant potential liabilities for municipalities seeking to terminate employees, especially longer term or senior employees. As a result, it is common for employers to seek to limit those entitlements in an employment agreement or offer letter to new employees. One common approach is to use language that indicates notice of termination or termination pay will be based on the amounts set out in the Code. The intention is that employees signing off on that agreement would only receive notice or severance based on the 1 to 8 week period set out in the Code.

However, several recent court decisions have confirmed that courts will very carefully scrutinize that type of contractual language seeking to limit an employee’s common law entitlements. Merely referencing that a termination will be based on employment standards legislation, or indicating that an employee’s entitlement will be “in accordance with” the Code, has been considered insufficient to limit an employee’s entitlement. That’s because the Code only sets out minimum standards, so a reference to paying based on the Code could imply that an employer must pay those amounts at a minimum, but also still be responsible for any common law obligations.

Any contractual provision seeking to tie any limits to the amounts in the Code must much more explicitly indicate that the specified periods are an employee’s sole and maximum entitlement to notice. Courts interpret such clauses very narrowly and strictly in favour of employees where there is any ambiguity or uncertainty, so it is an area where municipalities should consider seeking legal advice to ensure any termination provisions in employment agreements or offer letters address these requirements.

To access AMSC’s Casual Legal Helpline, AUMA members can call toll-free to 1-800-661-7673 or email casuallegal [at] amsc.ca (casuallegal[at]amsc[dot]ca) and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact riskcontrol [at] auma.ca (riskcontrol[at]auma[dot]ca), or call 310-AUMA (2862) to speak to AUMA’s Risk Management staff. Any Regular or Associate member of the AUMA can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.