Law Times

Law Times • march 13, 2017 Page 7 www.lawtimesnews.com Ruling on enforceability of termination clauses BY NIKOLAY Y. CHSHERBININ T he importance of employment in a person's life enables courts to in- terpret employment agreements differently from commercial agreements. However, the question of en- forceability of a termination clause within an employment agreement has been plagu- ing our courts with uncertainty for years. In its recent judgment, Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, the Ontario Court of Appeal reaffirmed that the enforceability of the termination clause stands and falls on its own wording and not on what an employer may have done on termination or during the notice period. It reinforced that termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the Employment Standards Act, 2000. In Wood, Fred Deeley Imports was the exclusive Canadian distributor for Har- ley-Davidson. In April 2007, it hired Julia Wood as a sales and event planner. In 2015, Harley-Davidson Canada entered into an agreement to buy all of the company's assets. As a result, the company notified Wood that her employment would ter- minate on August 4, 2015. At the time of dismissal, 48-year-old Wood worked for the company for 8.3 years and received ap- proximately $100,000 in annual compen- sation. Relying on the termination clause in Wood's employment agreement, which she signed one day after she commenced her employment, the company provided her with 13 weeks of working notice. Dur- ing working notice, the company paid her base salary and made all required contri- butions to her health and dental plans. At the end of working notice, the company paid Wood additional compensation, in- cluding a lump sum equivalent to eight weeks' pay. Neverthe- less, Wood sued for a wrong- ful dismissal, contending that her termination clause was unenforceable for two reasons: It expressly excluded the com- pany's statutory obligation to contribute to Wood's benefit plans during the notice period; and it did not clearly satisfy the company's statutory obliga- tion to pay her severance pay. The action proceeded by way of a summary judgment motion. The motion judge dismissed Wood's motion and held that both the em- ployment agreement and the termination clause were enforceable. Wood appealed. On appeal, the main issue was whether the termination clause was enforceable. Writing for the Ontario Court of Appeal, Justice John Laskin found the clause to be void and unenforceable. Having acknowl- edged that a motion judge's interpretation of a contractual provision is now entitled to deference from an appeal court, he concluded that the motion judge made an extricable error of law in holding that the company's actual contributions to Wood's benefits plans were material to the inter- pretation of the termination clause. Laskin resolved that the company's con- tributions on termination should have no bearing on whether the termination clause is enforceable. The wording of the clause alone must be looked at to decide whether it contravenes or complies with the ESA. He opined that if employers can be allowed to cure illegal termination clauses by com- plying with the ESA on termination, then they would have little incentive to draft enforceable termination clauses at the beginning of the employ- ment relationship. In addition, Laskin clarified that the word "pay" in the phrase "two week's notice of termination or pay in lieu thereof " was ambiguous and contemplated only salary or wages, not benefits. In considering the "more difficult" question of whether the termination clause also contravened the ESA because it does not satisfy the com- pany's statutory obligation to pay severance pay, Laskin concluded the clause conf lated the company's separate statutory obligations. The clause required the company to give Wood "two weeks' notice of termination or pay in lieu there- fore for each year of employment." These payments and notice were "inclusive of [Wood's] entitlement to notice, pay in lieu of notice and severance pay." The termination clause allowed the company to fulfil its statutory obliga- tions in one of three ways, with only one of those ways satisfying the company's statutory obligation to pay severance pay. First, the company could have given Wood a lump sum payment equal to 18 weeks' salary (pay equal to two weeks' notice for every completed or partial year of employment — nine times two weeks). Second, the company could have given Wood 18 weeks' working notice, which would have provided her with more notice than she was entitled to under the ESA but she would not receive any severance pay. Third, the company could do what it ac- tually did: provide a combination of work- ing notice and a lump sum payment. Depending on how much working no- tice the company gave, Wood may or may not receive the severance pay she was en- titled to under the ESA. From Wood's per- spective, when she signed her employment agreement, she could not know whether she would receive the severance pay if her employment ended. Because the clause was ambiguous and allowed the company to not pay Wood her statutory severance pay or to pay her less severance pay, the Court of Appeal found it to be unenforceable. The court also observed that just because Wood signed her employment agreement one day after she started working, it would not nec- essarily render it unenforceable for the lack of fresh consideration. It explained that a written employment contract might well be unenforceable if an employer included in it a material term that was not part of the original employment agreement. Because Wood did not argue that the company unilaterally imposed a new term of her em- ployment, the signing of the employment agreement, in her specific case, was a matter of administrative convenience and did not render the agreement unenforceable. Wood is a welcome decision for em- ployees and the employment bar. It serves to incentivize prudent employers to pay close attention and draft enforceable ter- mination clauses. Should the clause not be onside with the ESA's notice, benefits and severance pay provisions from the outset of the employment relationship, courts will invariably invalidate them. LT uNikolay Chsherbinin is an employment and immigration lawyer and author of The Law of Inducement in Canadian Employ- ment Law. He can be reached at 416-907- 2587 or by visiting nclaw.ca. Ticket bots: Raging against the machine BY PAUL CHODIRKER AND MAYA BIELINSKI O ntario Attorney General Yasir Naqvi recently announced that the provincial government is seeking public input to address the problems presented by so-called ticket bots. For those unfamiliar with this dystopian- like term, ticket bots are software programs that obtain tickets from an online ticket-selling platform beyond a specified limit, circumventing website fair purchase rules. These tickets are then typically resold, often at marked-up prices. In Ontario, ticket bots gained infamy in 2016 after they were blamed for immediate sellouts of Tragically Hip concerts that featured musician Gord Downie. Now, Naqvi says the provincial government is seeking "practical solutions." The provincial consultation, which is currently available online until March 15, is part of a larger project to update current legislation and develop new rules about buying and selling event tickets. In Ontario, the secondary ticket market was legal- ized in 2015. Before the amendments to the Ticket Speculation Act — which came into effect July 1, 2015 — selling tickets for greater than face value was prohib- ited. Now, the act allows for people to profit from the resale of tickets if sellers can provide authentication or offer a money-back guarantee for the ticket. The act, however, does not tackle the problems pre- sented by automated ticket purchases. Ontario's inten- tion to enact legislation follows recent efforts in the United States. Last year, the Better Online Ticket Sales Act became federal law south of the border. In December 2016, then-U.S. president Barack Obama signed into law prohibitions on the use of technology on a ticket-issuing website that enforces purchasing rules for events for more than 200 people. Violations are treated as "unfair or de- ceptive acts" under the Federal Trade Commission Act. The BOTS Act gave the U.S. Federal Trade Commis- sion or state attorneys general the enforcement mecha- nism needed to take civil action against ticket bot opera- tors. In our opinion, if Ontario decides to make the use of ticket bots an unfair practice under its consumer protec- tion legislation, it should consider departing from a strict parallel of the American solution in at least two ways. First, individual members of the public, and not merely the provincial government, should be given standing to start an action against the wrongdoer. Second, use of a ticket bot should be considered an independent wrong, and not just another type of unfair trade practice. South of the border, fans or industry stakeholders who are dis- satisfied with ticket bot practices have to convince re- source-strapped attorneys general or the Federal Trade Commission to pursue resellers under the BOTS Act. Al- though the secondary ticket market can be big business, high-cost investigations and prosecutions cannot be pur- sued every time a small-time reseller uses a ticket bot. In Ontario, if fans or people or companies working in the entertainment industry could go to court them- selves, the ticket bot prohibition would have a better chance of being enforced. To work effectively, the rem- edy would have to be available whether or not restitu- tion or damages would otherwise be available. In On- tario, many consumer rights, including some rights in the face of unfair or deceptive trade practices, are set out in the Consumer Protection Act. The consumer may be entitled to rescind any agreement entered into with the wrongdoer and to seek restitution or damages. How- ever, to pursue damages against a wrongdoer under the CPA, a consumer has to contract with a wrongdoer. The requirement that a consumer have a contract with the ticket bot user to pursue damages does not comfortably fit in this context. What makes ticket bots wrong is not that they allow the reselling of tick- ets (which, as described above, was legalized in 2015) but that they circumvent fair ticket purchasing rules, leaving no tickets for primary market event-goers. To craft and structure legislation that addresses this wrong, it may be useful to look to Canada's Copyright Act, which includes a provision on circumventing tech- nological protection measures that are used to control access to or use of copyrighted works. Under the Copy- right Act, the circumvention of technological protection measures is prohibited independent of any prohibition on infringement of copyright. A similarly independent provision in consumer protection legislation could allow a primary ticket seller to pursue the ticket bot user, thus enhancing the likelihood of enforcement. Although a le- gal remedy to the ticket bot problem is welcome, indus- try practices may also offer long-term solutions. Innovations such as Ticketmaster's ticketless card- swipe solution have already helped curb ticket bot prac- tices. For the Victoria Palace Theatre's production of the hit musical Hamilton in London, England, Ticketmas- ter introduced the requirement that theatre-goers swipe the credit card used to pay for each ticket to gain entry to the venue. Similar innovations are already in practice in venues such as Massey Hall in Toronto. For lawmakers, fans and people and companies in the entertainment industry, ticket bots have become a serious problem. It is encouraging to see the provincial government seek feedback on how to make sure every- one has a chance to buy tickets to shows at fair prices. At least now, the conversation has moved beyond the inner circle of the concert industry and into the living rooms of Canadians and their elected officials. LT uPaul Chodirker is entertainment counsel with Gilbert's LLP in Toronto and Maya Bielinski is an articling student at the firm. u SPEAKER'S CORNER COMMENT Labour Pains Nikolay Chsherbinin

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