Even More Reason to Think That Your Contract is Unenforceable
As anyone who has been following our blog will know, over the last few years we have seen a pattern in Ontario of courts highly scrutinizing termination clauses. The courts have repeatedly sent the message that employers are expected to draft clauses right the first time, in a way that ensures compliance with the minimum requirements of the Employment Standards Act, 2000 (the “ESA“), without relying on saving language to fix an otherwise deficient clause.
The recent decision of the Ontario Superior Court of Justice in Baker v. Van Dolder’s Home Team Inc.continues to follow this trend.
Baker v. Van Dolder’s Home Team Inc.
In this case, the court was asked to assess a termination clause which included language in the event of a without cause dismissal similar to that found in the landmark decision of Dufault v the Corporation of the Township of Ignace. As discussed in detail in our earlier blog post covering this case, the court in Dufault struck the termination clause due, in part, to language in the termination clause which provided that the employer could dismiss the employee without cause at its “sole discretion” and “at any time”. The court reasoned that such language had the potential to violate the ESA, as there are circumstances in which the ESA prohibits dismissal (such as a reprisal).
Many members of the employment bar questioned whether this novel argument would be upheld on appeal, or followed in subsequent cases. While the decision was appealed, the Court of Appeal ultimately declined to address this issue, finding that the termination clause was properly struck on other grounds.
The decision in Baker confirms that the court’s reasoning in Dufault is law that must be followed. As a result, termination clauses which contain language suggesting that an employee’s employment can be terminated “at any time” will be found to be unenforceable.
Although the language in the without cause provision of the termination clause in Baker was sufficient to render the entire clause unenforceable, the court went a step further “for the sake of completeness” and it also assessed the “with cause” provision, which provided as follows:
Termination with cause: we may terminate your employment at any time for just cause, without prior notice or compensation of any kind, except any minimum compensation or entitlements prescribed by the Employment Standards Act.
The court found that the with cause provision was also unenforceable, as it failed to clearly set out the higher standard of “wilful misconduct” necessary under the ESA to disentitle an employee to notice/termination pay and or severance pay. The court specifically noted that the saving language in the clause (bolded above) was not sufficient to correct this deficiency, on the principle that “a regular employee cannot be expected to appreciate” the different standards of cause under the common law and the ESA. As a result, the court noted that “many employees would assume that they had no entitlement if they breached the contractual standards.”
Key Takeaways
As the court noted in Baker, employers are being held to an “exacting standard” when it comes to properly drafting termination clauses, and the consequences for failing to get it right can be substantial. If you are an employer, now is a good time to have your employment agreements reviewed and updated to address the issues noted in Baker and previous decisions. We regularly work with employers to assist them to draft and implement effective termination clauses. Please don’t hesitate to reach out to discuss how we can assist you to protect your business.
If you are an employee, the Baker decision serves as yet another important reminder that you should never assume the termination clause in your employment agreement is enforceable. If you have been dismissed, please contact us before accepting a severance package so that we can assist you to ensure you are not leaving money on the table.
