A recent decision of an Ontario court should serve as a warning to all employers regarding the care that needs to be taken when drafting termination letters.

In Stowar v. Telehop Communications Inc., the court dealt with a situation where a termination letter drafted by an employer overstated the employer's obligations under the Employment Standards Act of Ontario ("ESA").  The letter specifically stated:

You will receive an additional five months pay in lieu of notice of termination as per our obligations under the Employment Standards Act of Ontario.

The actual ESA entitlement was three weeks' termination pay.

A few days after the employee signed the letter to accept its terms, the employer realized its mistake and attempted to correct the error.  The employee refused to allow the correction and the issue went to court.

The court determined that the letter was a binding and enforceable agreement, stating:

The letter was to be the completion of the contract.  It represented not only the fulfillment of the employer's statutory obligations, but also its effort to conclude its common law responsibility to provide reasonable notice or pay in lieu of that notice.  The acceptance of the letter would represent the completion of all the employer's obligations.  The signature was the acceptance.

The letter was an offer to the employee regarding how the employment relationship would be terminated, and the signature marked acceptance of the terms of that offer.  Once acceptance occurred, the employer did not have the right to unilaterally alter or revoke any terms.

What all employers can take from this decision is the simple, but important, lesson that you must be very careful when drafting the terms of a termination letter.  Once the terms of the termination are accepted it may be too late to fix any errors.  Reference to the ESA also will not save you if the letter contains a specific term that exceeds the Act.  The ESA sets out minimum standards and does not prevent an employer from providing a notice period in excess of the minimum.  Employers must be fully aware of their obligations before drafting a termination letter, and exercise due diligence before the letter is presented and has reached the point of no return.

For more information on the obligations of an employer when terminating an employee, you can visit our Employment and Labour website here.  You can also reach the writer at sean.morrison@gowlings.com  and our Manufacturing and Distribution website at www.gowlings.com/industry/md.asp.