Williams HR Law LLP

UNENFORCEABLE TERMINATION LANGUAGE ANYWHERE WITHIN THE EMPLOYMENT CONTRACT CAN INVALIDATE THE TERMINATION CLAUSE

September 9, 2022

In Henderson v Slavkin [Henderson], the Ontario Superior Court of Justice ruled that an employee was entitled to common law reasonable notice with respect to the termination of her employment even though her employment agreement contained an enforceable termination clause. The Court assessed several clauses mentioning termination in the employment contract in a way that was not compliant with the Employment Standards Act, 2000 [ESA] and held that any unenforceable language relating to termination was enough to invalidate the valid termination clause.

Background

The Plaintiff, Ms. Henderson, worked as a receptionist for two oral surgeons who had made plans in 2015 to retire and gave notice to their employees regarding their plan to slowly transition out of practice. All staff were given new written employment contracts and a letter outlining the details of this plan. Prior to this, the Employer had never implemented written employment contracts. The Plaintiff accepted the terms of the written contract and continued working for the Employer until 2020, when it was announced that the employment of all staff would be terminated due to the closing of the practice.

The Plaintiff consequently alleged that she was wrongfully terminated as the contract of employment she was asked to sign in 2015 was unconscionable and contained provisions contrary to the ESA. The Plaintiff alleged three provisions in the employment contract were illegal: the termination clause, the conflict-of-interest clause, and the confidentiality clause.

The Court’s Decision

The Court held that the employment contract was invalidated due to the conflict-of-interest clause and the confidentiality clause being inconsistent with the ESA. Notably, the Court ruled the termination clause itself to be enforceable as it did not find any inconsistency or ambiguity between the clause and ESA provisions. However, the other two provisions included termination-related language that was inconsistent with the ESA, and therefore invalidated the entirety of the termination provisions.

Unenforceable Provisions Separate from the Termination Clause

The conflict-of-interest clause was found to be unenforceable as the provisions were overly broad and ambiguous. The clause stipulated that employees could not have any personal interests that conflicted with the employer’s interests and stated any failure to comply with the clause would constitute cause for termination without notice or compensation in lieu of notice.

In finding that the clause was invalid, the Court noted that words were missing from the provisions detailing what a conflict of interest entailed, to the point that an employee would have to guess what conduct might constitute cause for termination without notice or pay in lieu thereof. The Court further held that the wording of the conduct captured within these provisions were overly broad and unspecific.

The confidentiality clause was also found to be unenforceable because it was ambiguous as to when disclosure of confidential information could occur without termination for cause. The Court envisioned a situation where disclosure of confidential information could be inadvertent and trivial, such that it would not support termination without notice under the ESA.

A crucial factor guiding the Court’s analysis in determining the two provisions as unenforceable was that both clauses specified termination without notice or pay in lieu thereof as the penalty for failing to comply, but contemplated conduct that fell short of the standards of wilful misconduct or wilful neglect of duty. Under the ESA, employees are entitled to at least the minimum statutory entitlements unless the employer can establish an employee is guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer. As some of the conduct detailed in both the conflict of interest and confidentiality clauses fell short of the ESA’s wilful misconduct standard, the entirety of the termination provisions were found to be unenforceable, and the Plaintiff was awarded damages equal to 18 months’ reasonable notice, with three months deducted for mitigation.

Wrongful dismissal damages not reduced by Canada Emergency Response Benefit (“CERB”) Payments

The Court’s ruling that CERB was not deductible from the wrongful dismissal damages award was another key consideration as caselaw has been inconsistent regarding this issue. In reaching its conclusion, the Court found that CERB was not a gain that flowed to the Plaintiff in this case as CERB was intended for employees who ceased working due to COVID-19, whereas the Plaintiff had received notice of her termination long before the pandemic occurred. This meant there was a genuine risk of the Plaintiff having to repay the CERB, invalidating the Employer’s assertion that CERB was a collateral benefit flowing to the Plaintiff.

Additionally, the Court did not find that CERB was intended to be an indemnity for wage loss stemming from an employer’s breach of the employment contract. As there was an insufficient basis to find a causal connection between the Plaintiff’s receipt of CERB and the Employer’s termination of her employment, the Court could not conclude that CERB would not have been received by the Plaintiff but for her wrongful dismissal.

Takeaways for Employers

Employers should be vigilant that all clauses in their employment contracts comply with the ESA. Based on recent trends in the caselaw, including the decision in this case, even where the Employer has an enforceable termination clause, it could be vulnerable to challenge if other clauses include termination language that does not meet ESA standards.

Given the implications of this decision, employers would be well-advised to ensure that their employment agreements are reviewed and revised, if they have not done so recently, even where they may have, for example, had the termination clause alone revised in the recent past.

On the separate issue of CERB deductibility, employers should be aware that CERB payments were not deductible from wrongful dismissal damages, following several other cases in Ontario that have reached the same conclusion. However, the Court based much of its reasoning in this case on the specific circumstances of the employee and it remains to be seen whether courts will apply this same line of reasoning beyond this particular case.

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