We have previously written about how the Ontario courts have treated termination clauses in employment contracts, particularly when they contradict statutory provisions in the Employment Standards Act (ESA). In a decision released last week, the Ontario Court of Appeal yet again set aside an employment contract and its termination provision.
Clauses Address Employer Rights Regarding Termination
The issue before the Court was an unusual one. The contract contained two important clauses dealing with the termination rights of the employer. The first was a “without cause” paragraph which allowed the employer the right to terminate with payment of the ESA minimum entitlements only. Ironically, no issue was taken by the employee with this term, in particular.
The second clause considered the right of the employer with respect to termination for cause. In this paragraph, the wording allowed the right to terminate for cause without payment of the minimum statutory sums. Here is where the clause violated the ESA.
How Does the ESA Define ‘Just Cause’?
The ESA has a higher standard of “just cause” than the common law standard. It requires, by virtue of Ontario Regulation 288-01 that the employee be shown to be “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”
The agreement did not make this distinction in the termination for cause section and hence this provision was in violation of the ESA. It, ideally, should have addressed termination for just cause at common law and the degree of misconduct required under the ESA individually.
All this being said, the employer did not terminate for cause. Should the “just cause” term then invalidate the entire termination clause, even though the termination with notice portion was well written in itself and otherwise enforceable?
It should be noted that the agreement contained a “severability” clause which allowed the Court to eliminate from the contract the offending clause and enforce the remainder of the terms.
The First Decision
Both parties were in agreement that the termination for cause term was in violation of the ESA and further that the second clause dealing with termination with notice was otherwise legal.
The central issue was thus the impact of the bad clause upon the good one. The lower court decided in the employer’s favour, enforcing the good term and dismissing the case. The judge reasoned that this clause was clear, and was quite capable of being understood without reference to the offending clause. In addition, as the termination was indeed without cause, this was the only clause to consider.
The Court of Appeal
The ONCA adopted a very generous and holistic approach to the contract, setting aside the lower decision and finding for the plaintiff. The agreement, it said, must be read as a whole and not in piecemeal. In taking this view, the Court was also mindful of a basic precept of the common law interpretation of employee rights. Namely, that the relationship is one of a power imbalance between the parties and, further, that the ESA is to be given a remedial interpretation to redress this power struggle.
In using this approach, the Court determined that the termination clauses, generally, both deal with a similar and related issue. It is not relevant, the Court stated, whether the clauses are differently situated within the contract or that this is a severable clause.
The fact that the employer relied on the non-offending portion of the term was irrelevant. What was critical was the legality of the termination clause as a whole when the agreement was signed.
The case was then remitted back to a lower court for the determination of fair notice. The plaintiff, parenthetically, earned a salary of $200,000, was employed as Director of Sales, was 42 years of age and had been employed for roughly nine months when he was let go. The notice period remains an outstanding issue, but it will certainly exceed the standard 2 weeks under the ESA.
Get Advice and Know Your Rights
Employment contracts are difficult beings for both employers and employees. This case illustrates, if nothing more, the need for precise and careful drafting of every clause. Both sides of the bargain should get careful and diligent advice before signing. Here the plaintiff succeeded, but this case was still high risk. The best course of action is reliable solid preparatory advice.
We remain by your side to provide real-time practical insight into the law and your position, whether you are an employer or employee. For advice on this issue and all employment law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.
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