Termination clauses help manage financial risk when employees are let go. When drafted clearly and in compliance with the law, they provide certainty. When they fail, damages can be significant, especially for employees with commissions or performance-based pay. Two recent cases illustrate the stakes.

Commission Exclusion Can Invalidate a Termination Clause in BC

A British Columbia Supreme Court case involved a long-serving salesperson paid mostly by commission. His employment contract capped notice at fifty-two weeks but specifically excluded commissions. In Hoem v. Macquarie Energy Canada Ltd., 2025 BCSC 446, the court found the clause invalid because it could violate the Employment Standards Act. Clauses that fall below statutory minimums are void from the start, even if they do not actually fall short in practice.

With the clause invalid, the default rule of reasonable notice applied. Considering the employee’s age, length of service, and position, the court awarded approximately $835,000 for notice, $106,000 for accrued vacation pay, and $35,000 in aggravated damages for the employer’s bad-faith conduct. These awards totaled roughly $976,000 before accounting for amounts already paid.

In summary, employers cannot exclude commissions or other statutory pay. A clause that risks falling below legal minimums can be completely invalid, exposing the company to substantial damages.

Forward-Looking Bonus Calculations in Ontario

An Ontario case involved an eighteen-year Managing Director in the mining sector who was terminated without cause just before a dramatic market boom. During the twenty-one-month notice period, his replacement earned bonuses exceeding three million dollars annually.

In Warren v. Canaccord Genuity Corp., 2026 ONSC 547, the dispute focused on how to calculate bonus damages. The employer proposed using a historical three-year average of the employee’s bonuses, around $670,000 per year. The employee argued that damages should reflect what he would have earned during the notice period, including the market-driven increase in compensation.

The court agreed with the employee, awarding $2.54 million after mitigation. This case demonstrates that wrongful dismissal damages are forward-looking. Courts consider what the employee would have earned if they had remained employed, not just what they earned in the past.

In other words, when pay is performance-based or tied to market conditions, damages can rise dramatically if a termination clause does not clearly limit entitlements to statutory minimums.

Lessons for Employers

These cases show that drafting termination clauses carefully is essential. Employers must ensure that clauses cannot fall below statutory minimums and that all protected forms of pay, including commissions and bonuses, are addressed. Clauses should also anticipate market fluctuations and performance cycles.

Without enforceable contractual limits, courts will apply forward-looking calculations, which can result in multi-million-dollar awards. Clear drafting, ongoing review of statutory requirements, and careful attention to compensation structure are critical to managing the risks of reasonable notice damages.

For assistance with reviewing or drafting employment contracts, evaluating termination clauses, or assessing potential notice exposure, feel free to contact us for expert guidance.

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