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Termination Clause in Policy Manual: Not Binding

By October 14, 2016January 21st, 2022Employment Law

At DMC, we keep our eyes on new employment cases in Ontario and across Canada. For example, a recent case from British Columbia about policy manuals caught our attention because many Dentists similarly operate their practices.

Here’s the main takeaway: an Employee Policy Manual has to be introduced and used correctly if the policies are going to be effective.

In this BC case (Cheong v. Grand Pacific Travel & Trade (Canada) Corp, 2016 BCSC 1321 (CanLII)), the employee worked for the employer for about ten years, worked elsewhere for about a year, but then went back with the same employer for another two years. At that time, the employer terminated her employment and gave her the minimum amount of termination pay, in accordance with the existing policy manual.

The employee argued that whatever was in the policy manual was not effective and did not govern her entitlements upon termination. The Judge agreed with her, and there were several reasons why the employee was successful. I’m going to outline the reasons and then provide my commentary.

Why This Policy Manual Failed

  • The employer introduced the policy manual after the employee was already hired.

Had the manual been in place before the employee started, this fault of the employer may not have been included. But this employee was a long service employee (10+ years). The employer tried to introduce a policy manual to supplement the terms of an employment contract but made a fatal mistake.

  • The employee received nothing in return for giving up her common law entitlement to termination pay.

This is the fatal mistake of the employer and one that cannot be overlooked. If an employer is ever going to try and keep something or take away something from an employee, the employee has to receive something in return (or are given reasonable notice that it is being taken away). This is called “consideration.”  It doesn’t really apply to a raise, where the employee is receiving a benefit. But it applies to almost everything else.

  • Nothing in the policy manual said its contents were actually a contract.

While it may sound obvious, the employer in this case tried to argue that everything in the policy manual was, in fact, a contract. The Judge disagreed. An employer holds most of the power in the employment relationship, so there is a higher burden on the employer to be fair to employees and not be heavy-handed.

  • If the policy manual were to be read as a contract, it erroneously said the employer could unilaterally “repeal, amend, modify, add to, or delete (any part of the manual) at any time”.

This is a standard line in existing policy manuals. The Judge disagreed with this clause in the manual because it condoned constructive dismissal (which is, to be brief, any significant and unilateral change made by the employer to a fundamental term of employment without notice). This particular Judge did not look kindly on the fact that, as mentioned above, the employer could use its unequal bargaining power in the employment relationship to many any change it wanted. This equally applied to the termination clause it put into the policy manual.

However, if the change that the employer wanted to make was a minor change to a non-fundamental term of employment (for example, changing the time when the employee can take a break in the day), that may have been allowed.

  • If the policy manual were to be read as a contract, then the policy manual erroneously used permissive language like “the Employer may provide health benefits.” The Judge found that such language showed that the policy manual was moreso an informational document and not a contract.

We always caution against using permissive language in any document. But here, since the employer tried to argue that their policy manual was a contract, the Judge ripped it apart and said it would have been a poorly written contract.

  • If the policy manual were to be read as a contract, the employee was never required to show she accepted its contents or sign that she accepted it, nor was the fact that she worked after it existed show that she accepted its terms.

Again, as above, if the policy manual were a true contract, there would have been a sign that the employee read, understood, and accepted its terms. However, in this case, there was not.

In the end, the employer was liable for 14 months of pay to this employee (she successfully argued that the break in her employment did not affect her tenure and termination pay since there was nothing that said the contrary). This could have easily been avoided if the policy manual had been introduced properly and clear contracts were given when hiring or re-hiring employees.

There is no excuse for a properly written, introduced, and implemented policy manual. A little bit of time spent organizing your practice can save a lot of time, money, and headaches down the road.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.