Thanks to Kim Reid, general counsel at Signalta Resources Limited, a private Calgary energy company, I belatedly learned of a troubling 2019 decision by Justice Fairburn of the Ontario Court of Appeal, Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679, 2019 (Westlaw PDF here; the court’s PDF here).
It involves interpretation of this termination provision in an employment agreement:
The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director’s entitlement pursuant to the Ontario Employment Standards Act or, at the Company’s sole discretion, either of the following:
a. Two (2) months working notice, in which case the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period.
b. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary.
After being terminated in 2017, the employee received what he was entitled to under the Employment Standards Act (ESA). The employee sued for damages for reasonable notice under common law and the benefits and bonus he would have received during that period.
The employee argued that the termination provision was unenforceable because it attempted to contract out of employment standards in the ESA. The trial judge held that the termination provision was unenforceable because it could reduce the employee’s benefits to something less than he would have been entitled to under the ESA.
The employer appealed. The Court of Appeal summarized the employer’s position as follows:
The appellant argues that the termination clause provides at least the statutory minimum amount of pay in lieu of notice and preserves the statutory entitlements to severance pay and continuation of benefits. The appellant contends that, regardless of whether the “greater” entitlement was under the first clause or clauses 4(a) or 4(b), the termination clause ensured that the respondent would always receive his minimum statutory entitlements under the ESA. The appellant characterizes the reference to the “greater of” at the outset of the termination clause as the “failsafe” clause, meaning that even if clauses 4(a) or 4(b) applied, the minimum statutory entitlements relating to benefits and severance would be provided under those clauses.
The judge disagreed:
I do not agree that the motion judge erred in this respect. I do not read her reasons as interpreting clauses 4(a) and 4(b) in isolation. To the contrary, the motion judge interpreted the clause as a whole. She set the entire clause out early in her reasons, including the first part of the clause that refers to the ESA. She also acknowledged the first clause on other occasions. Her reasons demonstrate her conclusion that she interpreted the word “or” as separating the first clause from clauses 4(a) and 4(b). For instance, as she observed when summarizing the appellant’s position, “[u]nder that provision, [the respondent] was entitled to the notice specified in the agreement, or notice in accordance with the ESA, whichever was greater.” She clearly interpreted the termination clause as a whole, viewing the first clause as separate and distinct from clauses 4(a) and 4(b).
I see no error in the motion judge’s approach to the word “or” as indicative of the disjunctive nature of the contents of the termination clause. She was right to conclude that the termination clause has two distinct parts. …
As the respondent points out, the termination clause required that a choice be made between which part of the clause comprised the “greater”: the first part of the clause (“entitlement pursuant to the Ontario [ESA]”), or entitlement under clauses 4(a) or 4(b). In light of the disjunctive nature of the clause, it was open to the motion judge to find that the first clause did not cast the ESA statutory entitlements upon clauses 4(a) and 4(b).
Given the motion judge’s finding that the termination clause contained two distinct and separate parts, it is unsurprising that she went on to consider the meanings of clauses 4(a) and 4(b) standing on their own. She did not, as the appellant suggests, fail to interpret the termination clause as a whole.
This is bewildering. If you say I’ll pay you the greater of A or B, that means if A is more than B, I pay you A; if B is more than A, I pay you B. It follows that under the termination provision at issue, the employee was assured of not receiving less than what was required under the ESA.
At one level, the employer inflicted this travesty on itself. MSCD ¶ 13.811 explains that as a matter of logic, using or in this context doesn’t make sense; you should use and. So this episode demonstrates, yet again, that if you include in a contract something, no matter how seemingly trivial, that doesn’t make sense, you shouldn’t be surprised if a court decides to attribute unanticipated meaning to it.
But as MSCD points out, Bryan Garner is in favor of using or. MSCD explains that Garner’s reasoning is weak, but for purposes of this decision, all that matters is that (1) using or in this context is commonplace and (2) using or cannot reasonably be used to wring a different meaning out of this usage.
I leave it to others to recommend to employers how they should word termination provisions in light of this decision. I’ll limit myself to pointing out that this decision inflicts damage on the world of contracts in two ways. First, this employer was deprived of justice.
And second, the court brought a relatively benign usage into question. For contracts to work, we have to be able to rely on our words not being misconstrued.
Courts have a reputation for bending over backwards to favor employees. If that’s what was going on here, it had the effect of throwing a wrench in the works.
On an upbeat note, I was pleased to see this analysis by Brad Hallowell of the law firm BLG. He says that the decision “adds more confusion than clarity,” and he says that the judge made a mistake. I find that refreshing: in Canada as in England, the attitude to courts on display in law-firm newsletters is usually one of forelock-tugging deference.