Impermissible subdivision of a termination clause

Enforceability of a termination clause in a written employment contract continues to be a vexing legal issue. An employment case in point is the Court of Appeal for Ontario decision in Amberber v. IBM Canada Ltd., 2018 ONCA 571, which clarified that subdivision of a termination clause into constituent parts and their subsequent individual interpretation is not permissible. It also re-affirmed an important canon of contractual interpretation that a termination clause must be interpreted as an organic whole, not piecemeal.

In Amberber, prior to joining IBM, Noah Amberber worked for its customer, Team Detroit, for 15 years. In March 2015, IBM hired Amberber and recognized his start date of Sept. 25, 2000 with Team Detroit for most purposes, including severance under the termination provision of the employment contract entered into between the parties. On April 19, 2016, IBM informed Amberber that his employment would be terminated, without cause, effective July 8, 2016. In addition to 3.5 months’ working notice, IBM provided Amberber with termination pay equivalent to 4.48 months of salary, in full compliance with the formula set out in the termination clause. 

Displeased with his severance package, Amberber launched a wrongful dismissal lawsuit, claiming an entitlement to pay in lieu of notice at common law of 16 months’ compensation. As part of his claim, Amberber asserted that the termination clause was unenforceable. In response, IBM brought a motion for summary judgment, contending that Amberber’s claim for damages at common law was precluded by the unambiguous wording of the termination clause.

There have been a myriad of cases that have considered whether termination clauses unambiguously exclude claims for common law damages. In Amberber, the ONCA aptly noted: “. . .  not all of the cases can be easily reconciled.”

While the intention to exclude common law damages must be clear, the ONCA repeatedly stated that “no particular form of words is required to achieve that result.” Hence, litigants often search for the least favourable interpretation of the termination clause with a view to invalidate it on the ground of ambiguity. However, ambiguity means something more than the mere existence of competing interpretations. The question whether the ambiguity exists is to be determined by an objective evaluation of whether there are two or more reasonable interpretations, otherwise parol evidence would be admitted in virtually every case.

In Amberber, the employment contract contained the following termination clause, which the motion judge subdivided into three parts and termed as the “options,” “inclusive payment” and “failsafe” provisions.

The ruling stated that in the options provision, “If you are terminated by IBM other than for cause, IBM will provide you with notice or a separation payment in lieu of notice of termination equal to the greater of (a) one (1) month of your current annual base salary or (b) one week of your current annual base salary, for each completed six months worked from your IBM service reference date to a maximum of twelve (12) months of your annual base salary.”

It also stated that in the inclusive payment provision, “this payment includes any and all termination notice pay, and severance payments you may be entitled to under provincial employment standards legislation and Common Law. Any separation payment will be subject to applicable statutory deductions. In addition, you will be entitled to benefit continuation for the minimum notice period under applicable provincial employment standard legislation.”

Lastly, in the failsafe provision, it stated that “in the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment (‘statutory entitlements’) than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.”

The motion judge concluded that the termination clause was ambiguous and, thus, unenforceable.

She did so by construing the “inclusive payment” provision as applying only to the first part of the clause (the “options” provision). Because the “inclusive payment” provision was not repeated after the concluding sentence of the “failsafe” provision, the motion judge held that it was not clear that the “inclusive payment” provision was meant to apply to the “failsafe” provision, which renders the clause ambiguous.

It is generally accepted that where a termination clause can reasonably be interpreted in more than one way, the interpretation that favours the employee should be preferred. However, Amberber reminds people that “the court should not strain to create an ambiguity where none exists.”

On appeal, the ONCA found that there was no ambiguity and that Amberber was entitled to nothing more. The ONCA opined that it was a fundamental legal error for the motion judge to interpret the termination clause in a piecemeal fashion by subdividing it into three constituent parts and interpreting them individually. It ultimately found that the motion judge committed extricable errors of law by significantly deviating from the text of the termination clause and straining to find an ambiguity where none existed.

It is now beyond contestation that the interpretation of a written contractual provision must always be grounded in the text, which, in turn, must be read as a whole and in the context of the circumstances as they existed when the contract was created. Failure to read a disputed provision as a whole is a question of law that is extricable from a finding of mixed fact and law and is reviewable on a correctness standard.

Nikolay Chsherbinin is an employment and immigration lawyer and author of The Law of Inducement in Canadian Employment Law. He can be reached at 416-907-2587 or by visiting nclaw.ca. Kali Larsen, articling student, contributed to this column.