Employment agreements often contain provisions about what should happen when an employee is terminated. We have previously reported on the issues employers face in enforcing termination provisions that include a term removing an employee’s right to a notice period if there is just cause to terminate.

This article recaps the development of courts refusing to enforce contractual termination provisions that contravene the Employment Standards Act 2000 (ESA). We then look at a new decision of the Ontario Superior Court of Justice which shows that courts may also refuse to enforce termination provisions where conflict of interest and confidential information clauses contravene the ESA.

Termination provisions that attempt to remove notice period for termination with cause

Employment agreements sometimes seek to remove an employee’s ability to claim a common law period of reasonable notice in the event of termination without cause, with the employee only entitled to the statutory minimum period under the ESA.

This is sometimes accompanied by a provision that says that an employee terminated with cause is not entitled to any notice period or payment in lieu.

Courts have held termination provisions including no notice for termination with cause invalid

Ontario courts have held since the case of Waksdale v Swegon North America Inc. that such termination provisions of an employment agreement may be invalid and unenforceable.

This is because ESA notice and termination pay must be given for all terminations, even those for just cause, except for prescribed employees. The provisions of the Termination and Severance of Employment Regulation (Regulation) contain the circumstances disentitling employees from the statutory termination pay, relevantly employees “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”.

As the wilful misconduct standard is different to that of a just cause termination, a provision in an agreement that removes notice for a just cause termination contravenes the ESA and is void.

Courts have repeatedly held that if a termination provision in an employment contract violates the ESA, all the termination provisions in the contract are invalid. This is the case even if the employer had not attempted to terminate the employee for just cause.

As a result, some employees dismissed without cause have brought wrongful dismissal claims and successfully claimed the payment of common law reasonable notice, even though their contracts purported to limit notice to the statutory minimum period under the ESA.

Employment contract contained conflict of interest and confidential information clauses

In Henderson v Slavkin, the plaintiff employee worked as a receptionist for an oral surgery dental office.

She signed an agreement containing a clause:

• requiring the employee to ensure that her direct or indirect personal interests do not conflict with the employer’s interests (the provision included examples of what a conflict of interest includes); and
• requiring the employee to not in any way use, disclose, copy, reproduce, remove or make accessible to any person or other third party, during or after the employment, any confidential information relating to the business, except as required by law or in the performance of job duties.

Both clauses stated that failure to comply constituted cause for termination without notice or compensation in lieu of notice.

Employee was terminated without cause

In 2019, the doctor announced plans to retire in six months’ time. The doctor could not sell the practice, and as a result, all staff were advised that they would be terminated.

The plaintiff worked during the six-month notice period and later commenced a wrongful dismissal action, arguing that her employment contract contained provisions that were contrary to the ESA and that she was therefore entitled to common law damages.

Court found the conflict of interest and confidential information clauses invalid

Justice Brown examined the conflict of interest and confidential information clauses of the plaintiff’s employment agreement.

Her Honour decided that the conflict of interest provision was overly broad and ambiguous and disagreed with the employer’s argument that the provisions all bespeak wilful misconduct or wilful neglect of duty. As a result of the Regulation entitling even those terminated with cause to minimal entitlements unless the employer can establish that the employee is guilty of wilful misconduct or wilful neglect of duty, her Honour found the clause invalid.

Justice Brown made the same finding in relation to the confidential information clause, stating:

In this case, it is not clear in what circumstances the disclosure of confidential information may occur without immediate termination for cause without notice. One can conceive of a situation where confidential information may have been inadvertently disclosed in a situation where it is not wilful and/or where it is a trivial breach. This clause does not respect the ESA provisions in this regard.

Employee was wrongfully dismissed and entitled to common law notice

Justice Brown found that the plaintiff was wrongfully dismissed. The conflict of interest and confidential information clauses of the employment contract were not in compliance with the ESA and therefore all the termination provisions in the employment contract were invalid.

The parties had agreed on a notice period of 18 months. Justice Brown reduced this by three months due to the length of time it took the plaintiff to mitigate. While it took her 18 months from her notice of termination to find a new job, her Honour was sympathetic due to the conditions created by the COVID-19 pandemic, the plaintiff’s age and her move to a smaller centre outside Toronto.

Contact Grosman Gale Fletcher Hopkins LLP in Toronto for Guidance on Employee Contracts and Termination

This decision highlights the need to negotiate and draft the termination provisions of employment agreements very carefully. At Grosman Gale Fletcher Hopkins LLP, we have been on both sides of written employment agreements. Our employment lawyers have a deep understanding of labour and employment matters. We have drafted, reviewed, and edited thousands of employment contracts and advised both employers and employees on their rights in the workplace.

We are one of Canada’s most recommended labour and employment law firms. If you need guidance with a workplace-related issue, contact us online or at 416.364.9599.