For some time now, it has been clear that Ontario courts are taking a no-nonsense approach to the interpretation of termination clauses. Since the Waksdale decision in 2020, the courts have been sending a strong message that employers will be held to a high standard when it comes to properly drafting termination clauses, and that failure to meet this standard will result in the clause being struck.
In a recent post, we explored the decision in Dufault v the Corporation of the Township of Ignace, in which a termination clause was struck out due to wording suggesting that the employer could terminate the employee’s employment in its “sole discretion” and “at any time”. Like many clauses in the past few years, this wording was found to be invalid for breaching the minimum standards established by the Employment Standards Act, 2000 (the “ESA”).
We know by now that the decision in Dufault is not an isolated judgment; it reflects a pattern of courts highly scrutinizing termination clauses. Around the same time as the Dufault decision, another termination clause fell victim to drafting that violated the requirements of the ESA in the case of De Castro v. Arista Homes Limited.
In this case, the employee was dismissed pursuant to a termination clause which provided that upon termination without cause, she would be entitled to receive only her minimum entitlements pursuant to the ESA. The employee brought a claim for wrongful dismissal and pursued a motion for summary judgment, arguing that the clause was unenforceable due to the language of the cause provision, which read as follows:
If you are terminated for Cause or you have been guilty of wilful misconduct, disobedience, breach of Employment Agreement or wilful neglect of duty that is not trivial and has not been condoned by ARISTA, then ARISTA will be under no further obligation to provide you with pay in lieu of reasonable notice or severance pay whether under statute or common law. For the purposes of this Agreement “Cause” shall include your involvement in any act or omission which would in law permit ARISTA to, without notice or payment in lieu of notice, terminate your employment.
As the court noted, the ESA provides that an employee who has been guilty of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” is not entitled to notice/Termination Pay. However, in this case, the employer had attempted to define the circumstances in which the employee could be dismissed without notice or pay in lieu of notice much more broadly, including simply being “terminated for cause” or for “breach of Employment Agreement”.
As a result, the court found that all the termination provisions in the employee’s employment agreement were void, and she was entitled to reasonable notice at common law.
Key Takeaways
Given how closely the courts are scrutinizing termination clauses, it is crucial that these clauses are drafted precisely and in a manner which aligns with the requirements of the ESA. Employers should have their employment agreements reviewed to ensure their clauses do not contain language similar to that seen in this decision, or in other recent cases such as Dufault. As employment law is a rapidly evolving area, we strongly recommend that employers have their contracts reviewed (and updated) on a regular basis. Please contact us to discuss how we can assist you to ensure your contracts effectively protect your business.
Given these recent decisions, employees should keep in mind that even if they have an employment agreement that contains a termination clause, it may not be valid. We strongly recommend that you contact us before accepting a package on dismissal to ensure you are not leaving significant entitlements on the table.
