Limitation Clauses – Keep Your Contract!

Employees, particularly younger employees entering the workforce for the first time, will occasionally fail to thoroughly review or negotiate the terms of their contract before signing them.

This may be due to a number of factors. Employees are typically eager to make a positive impression upon their new employers and do not wish to “rock the boat” before they begin their employment. Employees may also not be aware of the implications of certain provisions, and how those implications can grow in magnitude over time. Lastly, employers typically hold most of the bargaining power and may be unwilling to entertain any negotiations.

Limitation Clauses

Many contracts of employment will include terms that govern the amount of notice or pay in lieu of notice, that is owed to an employee if the employer decides to terminate their employment on a without cause basis. These are called “limitation clauses” in employment law parlance, although they will likely be found under a heading simply entitled Termination in your contract. These clauses can have enormous significance, particularly if your employment lasts a number of years.

Generally speaking, an employer is entitled to dismiss an employee provided they give that employee adequate notice, or payment in lieu of notice, of their dismissal. But how do you determine what is reasonable notice? You look at three different sources: statute, the common law, and your contract.

Governing Statutes

The statute governing provincially regulated employees in Alberta is the Employment Standards Code. If you are working in a federally regulated industry, the applicable legislation is the Canada Labour Code. These pieces of legislation establish the minimum notice, or pay in lieu of notice, that employers must provide their employees when dismissing them without cause.

These statutory provisions cannot be contracted out of. If a contract has a limitation clause that contravenes the legislation, that provision is void and unenforceable. You can review the legislation that applies to you to make sure you are receiving your proper statutory entitlement.

Under the common law, employees will normally be entitled to significantly more than their statutory termination pay. The common law relies on a number of factors, called the Bardal factors, to determine what amount of common law reasonable notice, or pay in lieu of notice, an employee is entitled to upon dismissal. The Bardal factors include your age, length of service, the character of your position, and the availability of similar employment.

Notice

Common law notice increases significantly as your length of service does. Whereas statutory notice for provincially regulated employees tops out at 8-weeks, common law awards can be much higher. For example, an employee who works twenty years for the same employer would be entitled to 8-weeks of statutory notice under the Employment Standards Code, and potentially 16-24 months notice under the common law. For this reason, a limitation clause that you sign in the early days of your career can seem insignificant if you resign your employment after a year or two, but it can grow to have enormous consequences if you remain with the same employer for a long period of time.

I mentioned above that an employment contract cannot provide less than what your statutory entitlement under the applicable legislation gives you. If it does, it is void. However, parties are free to vary, or contract out of, common law notice. Employment contracts will sometimes stipulate that a dismissed employee is entitled to only what the relevant legislation provides. 

In the previous example, we saw the discrepancy between statutory rights and common law rights in the notice for our 20-year employee. If that employee is subject to a provision that limits their notice to their statutory entitlement, they would only receive 8-weeks notice or pay in lieu of notice, and would not be entitled to the 16-24 months of common law notice.

Summary

As you can see, limitation clauses have significant consequences for your entitlements upon dismissal. They are frequently litigated in our courts. As a result, there is a large body of case law that deals with their interpretation. A clause that may seem straightforward is often unenforceable: it may not be clearly worded, it may not properly oust your common law entitlement, or it may conflict with a provision of the applicable legislation.

Employees should be encouraged to review a limitation clause with an employment lawyer. Interpreting such clauses requires legal training and familiarity with the relevant case law. Employers should be cautioned to not rely on a hastily or poorly drafted limitation clause, and know that the old adage “an ounce of prevention is worth a pound of cure” certainly applies to their drafting.

It is important to keep a copy of your employment contract somewhere safe and readily available. We recommend keeping both a digital file on your personal computer (not your work computer) and a physical copy in your place of residence.

Should you ever require the services of an employment lawyer, your contract is essential to assess what you are entitled to upon dismissal. If you have been handed a contract of employment that has a limitation clause, or any other clause you are unsure of, book a consultation with one of our lawyers right away and we can help you review and negotiate the terms of that contract.

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