The Ontario Court of Appeal (the “ONCA”) recently released its decision in Dufault v Ignace (Township), ultimately upholding the decision from the Ontario Superior Court of Justice (the “ONSC”) that the entire termination provision was unenforceable.

As previously discussed on our blog, in Dufault v The Corporation of the Township of Ignace [Dufault], the ONSC found the termination clause in a fixed-term employment agreement violated the Employment Standards Act, 2000 [ESA] because, among other things, it permitted the employer to terminate the employee’s employment on a without cause basis “at any time” and in the employer’s “sole discretion”.

The employer appealed to the ONCA, taking the position that the termination provision complies the minimum standards set out in the ESA. The employer also sought to have the court reconsider and decline to follow its prior decision in Waksdale v Swegon North America Inc [Waksdale] in which the ONCA held that termination provisions must be read as a whole, such that the unenforceability of one termination provision will render all termination provisions in the agreement unenforceable (for more information on the Waksdale decision, see our previous blog).

Background

In Dufault, the worker signed a fixed-term employment agreement, containing a termination provision stating:

The [employer] may, at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows […] [emphases added].

After signing a fixed-term agreement, the worker was dismissed two months later without cause, with 101 weeks remaining on the contract. The employer, relying on a termination clause allowing dismissal without cause, provided two weeks’ pay in lieu of notice. The employee then filed a wrongful dismissal claim.

Procedural History

The ONSC ruled that the “without cause” termination clause was unenforceable because it allowed for termination of employment at the employer’s “sole discretion”, at any time. These terms were determined to permit the employer to dismiss the worker without cause at any point, which was deemed to contravene the ESA as employers are prohibited from terminating employment without cause on the conclusion of an employee’s leave (ESA, s. 53) or in reprisal for attempting to exercise a right under the ESA (s. 74).

The ONSC ruled in favour of the worker and ordered the employer to pay out the remainder of the fixed-term employment agreement.

The employer appealed the lower court decision, again asserting that the termination provisions were compliant with the ESA and enforceable. Further, the employer sought to have the ONCA reconsider the Waksdale decision, arguing that even if the “for cause” portion of the termination provision were unenforceable, it should be severed from the remainder of the termination provision as a whole, allowing the employer to rely on the “without cause” portion of the agreement.

The ONCA Decision

The ONCA upheld the lower court decision, dismissing the employer’s appeal.

The court found the “for cause” termination clause violated the ESA. In particular, the court found the clause suggested that the employer could dismiss the worker for cause while withholding notice and pay in lieu of notice in the absence of conduct rising to the level of willful misconduct outlined in section 2(1)3 of O. Reg. 288/01 (the “Regulation”). In other words, the “for cause” portion of the termination provision was broadly worded such that the employer could dismiss the worker for cause and deny the worker statutory entitlements upon dismissal, despite their conduct failing to rise to the standard of willful misconduct.

The court refused to reconsider the Waksdale decision, stating that as a 3-judge panel, it was precluded from reconsidering the case. As such, the ONCA declined to comment on the enforceability of the “without cause” termination clause, finding that in accordance with Waksdale, the termination provision must be read as a whole and the unenforceability of the “for cause” portion rendered the entire provision unenforceable.

Takeaways

We previously outlined key considerations from the ONSC’s decision in Dufault. As the ONCA declined to specifically address the basis on which the termination clause was found to be unenforceable in the lower court’s decision, and instead relied on Waksdale principles, the law currently remains the same, but may face further challenges in the future where a termination clause complies with Waksdale, but would still be found to be unenforceable according to the ONSC’s decision in Dufault.

The Court of Appeal’s ruling confirms the potential financial risks for employers when termination clauses are not properly worded and underscores the importance of ensuring that employment agreements comply with employment standards laws to avoid costly legal consequences.

For more information or assistance in reviewing your existing employment agreements and/or in strategically implementing new and enforceable employment agreements in your workplace, please contact any of our lawyers for guidance.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.