Recent decisions in the Ontario courts have created uncertainty for Ontario workers
as to whether the termination clauses in their contracts are valid or not. Many
employment contracts contain a sentence that reads something like this:
as to whether the termination clauses in their contracts are valid or not. Many
employment contracts contain a sentence that reads something like this:
c) Termination by the Company for Just Cause – The Company has the
right, at any time and without notice, to terminate your employment under
this Agreement for just cause.
Under this provision, if the employer has “just cause” to terminate the employee,
they can be terminated immediately, without any right to notice or pay in lieu of
notice.
This type of provision has been found void because it violates the Employment
Standards Act (ESA). The problem arises from the different standards for
terminating someone’s employment for cause under the common law and under the
ESA. Under the common law, employers may terminate without notice if they have
“just cause”, a concept which is broader than just wilful misconduct, and can
include things like prolonged incompetence. The ESA, on the other hand, only
permits termination without notice for wilful misconduct, sometimes described as
“being bad on purpose.”
So, the problem with the termination provision above is that it allows the employer
to terminate an employee, without any notice (even the limited right to notice
under the ESA), for conduct that wouldn’t rise to the level of wilful misconduct, and
therefore violates the ESA. For this reason, Courts have found this type of clause to
be void.
The Court of Appeal went even further in Waksdale, a decision released last
summer, ruling that, if the termination for cause provision is invalid, the whole
termination provision is invalid. (To learn more about that decision, read our blog
about it here). What this means is that, even if an employee is terminated without
cause, the fact that their “just cause” provision was invalid means the whole
termination clause is invalid. This then entitles the terminated employee to receive
pay–in–lieu of common law notice, which is generally higher than notice under the
ESA.
While Ontario workers may have hoped Waksdale settled this area of the law, more
disagreements have arisen among Ontario judges about whether this analysis
applies in the same way to all employees, or if it is only meant to protect more
vulnerable parties. In a case released in September, the Court rejected the idea
that a “just cause” provision should always be interpreted as violating the ESA.
Justice Dunphy reasoned that, in this case, the plaintiff was a sophisticated party,
being hired to perform a senior role, with a high salary. She received legal advice
and the parties specifically negotiated the termination clause. He concluded that her
contract provided her a greater benefit than the ESA. Because there was no
disparity in bargaining power, there was no reason why the provision should be
invalid.
disparity in bargaining power, there was no reason why the provision should be
invalid.
But in a case released in October, the Court reached the opposite conclusion. The
contract of employment was negotiated together with a business deal. The
employee was a sophisticated party and was represented by a lawyer when
negotiating the contract.
Despite the fact that there was no significant imbalance of power, the Court found
“no compelling reason” why the employer should be able to rely on a termination
provision that did not comply with the ESA. Justice Black recognized the broader
impact of ensuring that contracts comply with the ESA:
Further, in my view the goal that employers be encouraged to draft clauses
that comply with the ESA trumps the suggestion that Livshin may have been
better able than many or most employees to recognize the potential peril.
These two conflicting decisions on a similar question, released one month apart,
have introduced greater uncertainty into the interpretation of employment contracts
in Ontario.
If you have questions or concerns about the how this case law may apply to the
termination clause in your employment contract, we are here to help. Please call
613–567–2901 or email info@ravenlaw.com to consult one of our experienced
employment lawyers.
