Court Decision Exposes Flaws in Standard Termination Clauses
Employers across Canada are being urged to exercise caution, as a recent legal ruling demonstrates that boilerplate termination clauses may not always offer the protection they are assumed to provide. This stark warning stems from a March 2026 decision by the British Columbia Court of Appeal, which has significant implications for businesses nationwide.
Case Details: A Costly Oversight for an Ontario Firm
In this landmark case, an Ontario engineering consulting company, FCAPX, found itself liable for over a year's salary to a terminated employee, despite having paid only two weeks' compensation as initially stipulated in a contract. The employee, Joseph Bouchard, had sold his engineering firm to FCAPX in 2018 for $120,000, with the agreement including his employment for a minimum of three years and a non-compete clause.
The conflict arose from contradictory terms across multiple signed contracts. While the Asset Purchase Agreement guaranteed Bouchard employment for no less than three years, the separate Employment Contract allowed FCAPX to terminate him at any time with minimal notice under Ontario law. This inconsistency was not addressed at the time of signing, leading to a legal dispute when FCAPX terminated Bouchard after 21 months due to performance issues.
Legal Analysis: Why the Court Sided with the Employee
The court examined all three contracts collectively and determined that the Asset Purchase Agreement's employment guarantee took precedence over the termination clause. This was largely because Schedule A of the Employment Contract explicitly stated that the Asset Purchase Agreement's terms would supersede any conflicting provisions. Additionally, the court applied logical reasoning, noting that Bouchard would not have agreed to a three-year non-compete without a corresponding job guarantee, as it would have unfairly restricted his ability to work in his industry.
Under Ontario employment law, breaking a fixed-term contract early typically requires the employer to pay the full remaining salary without deductions for other income earned. Consequently, FCAPX was ordered to compensate Bouchard for approximately 15 months of salary, a substantial increase from the original two-week payout. However, the court also found that Bouchard breached his non-compete by working for former clients post-termination, ordering him to pay FCAPX around $20,700 in damages.
Key Lessons for Businesses and Employees
For Business Owners Selling Their Company: If you agree to stay on as an employee after a sale, your employment terms are defined by every contract in the package, not just the offer letter. Ensure that any non-compete agreements are matched with solid, consistent employment commitments across all documents. Consulting an employment lawyer before signing is highly recommended to safeguard your rights.
For Employers Acquiring Businesses: Promises made in purchase agreements can override standard termination clauses in employment contracts. A boilerplate at any time, without cause clause may not provide protection if other agreements contain conflicting terms. Ambiguities in contract language are often interpreted against the employer, so it is crucial to have all related documents reviewed by legal professionals to ensure alignment and clarity of obligations.
This case underscores the importance of meticulous contract review and legal guidance in business transactions. As employment lawyer Sunira Chaudhri, who co-wrote the analysis with associate Samantha Khaouli, emphasizes, relying on generic clauses can lead to unexpected financial liabilities and legal disputes.
