We previously discussed the Dufault v The Corporation of the Township of Ignace decision, which impacted the enforceability of many termination clauses in Ontario. More recently, the Ontario Superior Court of Justice (“ONSC”) in Baker v Van Dolder’s Home Team Inc [Baker] reaffirmed the principles established in Dufault, holding that a termination clause permitting an employer to terminate an employee’s employment “at any time” is unenforceable.
Background
In Baker, the employee was dismissed without cause. His employment agreement contained termination provisions that permitted the employer to dismiss him for just cause or without cause “at any time.” The employee commenced a wrongful dismissal action, and the employer brought a motion for summary judgment seeking a determination on the enforceability of the termination clause.
Decision
Although the parties initially agreed that the issue before the ONSC was the enforceability of the with-cause termination clause, the ONSC followed the reasoning in Waksdale v Swegon North America[Waksdale] and assessed both the without-cause and with-cause termination clauses. In Waksdale, the Ontario Court of Appeal held that if any portion of a termination clause is unenforceable, the entire clause is rendered void.
The Without-Cause Termination Clause is Unenforceable
In assessing the without-cause termination clause, the ONSC cited Dufault and agreed that the “at any time” language was inconsistent with the Employment Standards Act, 2000 [ESA]. Specifically, under the ESA, an employer may not dismiss an employee “at any time”—for example, in reprisal for the employee exercising their statutory rights. As such, the without-cause termination clause violated the ESA and was unenforceable.
The With-Cause Termination Clause is Unenforceable
The ONSC followed Perretta v Rand A Technology Corporation [Perretta] to determine that the with-cause termination clause was unenforceable. The language in the clause failed to distinguish between “just cause” at common law, a contractual definition of “just cause”, and the ESA standard of “wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned by the employer”.
The ONSC noted that a typical employee cannot reasonably be expected to understand the legal distinctions between these standards and that employees must be able to understand their entitlements with certainty.
As a result, the ONSC dismissed the employer’s motion for summary judgment.
Takeaways for Employers
The Baker decision reinforces the increasing scrutiny applied by the courts to termination clauses and the legal risks employers face when such clauses do not comply with the ESA.
A particular area of concern is the language used in “just cause” termination provisions. In Ontario, employers can dismiss an employee for just cause without providing notice or pay in lieu of notice only if the employee’s conduct meets the “wilful misconduct” threshold under the ESA, which is a high bar and narrower than the standard for just cause under common law. Employers should be mindful when drafting their termination provisions, as even in cases of just cause for dismissal, an employee may still be entitled to their minimum statutory entitlements under the ESA.
Given the evolving laws regarding the enforceability of termination provisions, employers should regularly review and update their employment agreements to minimize financial risks arising from unenforceable termination provisions.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.