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Ontario Court determines that plain meaning of Contractual Language is best indicator of Parties' Intentions

The Ontario Superior Court of Justice recently confirmed that the plain meaning of language in employment contracts will likely be relied on by the Courts when called upon to determine the intentions of the parties entering such contracts.

In Freudenberg Household Products Inc. v. Digiammarino, the Employer included a severance provision in the employment agreement. The provision reads as follows:

In the case that the Company would decide to terminate the contract with the employee in the first 4 years after the signature, the Company will pay to the employee an indemnity compensation of two (2) years salary including the bonuses… This indemnity will include any other compensation arising from normal labour relations. After these 4 years, this indemnity compensation will be no more applicable and the potential separation will be regulated by normal Canadian labour relations.

The Employer intended this provision to mean that if the employee was terminated at any time after being employed with the company for four years, that the severance provision would not apply and, consequently, the ESA termination/severance minimum standards would.

Operating under that assumption, the Employer made the decision to terminate the employee 3.5 years into her employment but chose not to inform the employee of the decision until the four-year term referred to in the provision had run its course in order to avoid the two-year payment.

The Court, however, relied on the plain meaning of the language in the provision and determined that the severance obligation was triggered when the company decided to terminate the contract with the employee within the first four years of her employment.

The Court held that if the Employer intended for the indemnity provision to apply based on the date of termination and not the date of the decision to terminate, then the Employer should have said so in the employment contract.

Not only was the Employer ordered to pay the two-year severance payment, including bonuses and benefits for the two year period, the court also adopted a recent Ontario Court of Appeal decision, Bowes v. Goss Power Products, and waived the employee’s obligation to mitigate.

The court in Bowes held that where an employment contract contains a stipulated entitlement on termination without cause and is silent as to the obligation to mitigate, the employee will not be required to mitigate. This recent decision solidifies Bowes as the leading authority in terms of mitigation in employment contracts. (Read the June 28, 2012 Employer’s Edge Blog by Andrew Cogswell on the Bowes decision here).

This decision should serve as a warning for Employers that written words, when reviewed by courts in isolation, often contain some level of ambiguity. This places more significance on clearly defining the terms and conditions that represent the actual intentions of the contracting parties at the time of an employment agreement’s execution. The lawyers at CCP can assist Employers with drafting clear and unambiguous employment agreements in order to maintain employee mitigation obligations and avoid future litigation costs.

Please Note: This blog has been prepared as an informational service for our clients and other interested parties. It is not intended to constitute legal advice, a complete statement of the law or opinion on any subject. Although we endeavour to ensure the accuracy of the content, no one should act upon the information provided without a thorough examination of the law after the facts of a specific situation are fully considered.



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