Without an express agreement specifying the severance owed to any employee upon termination without cause, employers have an implied obligation to provide “reasonable notice”. Reasonable notice is determined on a case-by-case basis according to a number of factors such as the character of employment, length of service, age of the employee, and the availability of similar employment.

“Reasonable notice” tends to significantly exceed the statutory minimum notice or pay employers must provide under the Alberta Employment Standards Code (the “Code”). Notice under the Code is determined strictly according to length of service and ranges from a minimum of one week after three months of employment, to a maximum of eight weeks after ten or more years of employment. Reasonable notice, by comparison, is often assessed in months rather than weeks and has been notionally capped by the courts at twenty-four months in cases of very senior and long-serving employees.  

Fortunately, employers can limit their exposure to reasonable notice by entering into agreements with their employees that expressly set out what pay or notice is owed upon termination. These provisions will generally be enforceable so long as they meet or exceed the statutory minimums of the Code.

However, limiting severance liability is easier said than done. Given the typical imbalance in bargaining position between employees and employers, the courts hold employers to a high standard in proving all the essential ingredients of a clear and binding severance agreement. In trying to meet this high standard, there are a number of pitfalls employers need to be wary of. For example:

  • A termination clause providing for less severance than is required under the Code is unenforceable.
  • Clauses tying an employee’s severance entitlement to the statutory minimums of the Code will be closely scrutinized; the presumption of reasonable notice will not be rebutted unless the clause clearly limits the employee to the statutory minimums:
    • A clause stating severance will be provided upon termination without cause “in accordance” with the Code is not clear enough to foreclose reasonable notice damages; and
    • A clause stating the termination provisions of the Code will form the “guidelines” by which the employer will provide severance is also not clear enough.
  • Severance provisions contained in policy manuals are inherently difficult to enforce because proof is required that the employee was made aware of the policy at the time of hire and agreed that the policy would govern in the event of termination.
  • Termination provisions implemented after the date of hire must be clearly communicated to the employee, and fresh consideration must be provided in exchange for the employee forfeiting his or her right to reasonable notice.
  • In exceptional cases, severance provisions can be held to be unenforceable due to coercion, oppression or unconscionability.  

Termination clauses must be carefully drafted to clearly specify that the employee’s entitlement to notice or pay in lieu of notice will be limited to the statutory minimum requirements of the Code (or to a specific notice period, payment or formula that will always meet or exceed the minimums set by the Code). If not, the clause will do little more than provide the employer with a false sense of security.