On March 31, 2021, the Ontario Superior Court of Justice released another new decision, Lamontagne v J.L. Richards & Associates Limited [Lamontagne], which found a termination clause to be unenforceable. This decision came months after the Ontario Court of Appeal’s June 2020 decision, Waksdale v Swegon North America Inc [Waksdale], which was analyzed in our previous blog post. The Waksdale decision was incredibly significant for employers because the court held that the termination clause under scrutiny in that case was unenforceable because it violated the Employment Standards Act, 2000 (the “ESA”). The language in question was contained in the “just cause” portion of the termination clause and was similar to language found in the vast majority of termination clauses which were in employment agreements that existed as of June 2020 in Ontario. For that reason, the Waksdale decision effectively invalidated most Ontario termination clauses in one fell swoop.
The Lamontagne decision affirms the principles that arose from the Waksdale decision, indicating that the Waksdale decision is here to stay. In light of this, we encourage employers that have not yet done so in the wake of the Waksdale decision to review their existing termination clauses in existing employment contracts and implement new employment contracts if necessary to ensure that the language in the termination provisions meets the new standard for enforceability.
Ontario Superior Court of Justice Decision
In Lamontagne, an employee was hired by the employer, J.L. Richards & Associates Limited, for about six years. On February 19, 2020, the employee was dismissed without cause. Upon dismissal, the employer had paid the employee all amounts that she was owed to the date of her dismissal. The employer relied on a termination clause which contracted out of common law notice of termination to only pay the employee the notice of termination amounts owing under the ESA. The court followed Waksdale in finding that the termination clause was unenforceable, and the employee was therefore entitled to common law notice of termination.
Due to its finding that the termination clause in the employment contract was illegal and void, the court in Lamontagne awarded the employee with common law notice damages in the amount of $100,035.68, representing a notice period of ten months. This dramatically exceeded the less than 13 weeks’ pay in lieu of notice the employee would have been entitled to had the termination clause been enforceable.
The decision from Lamontagne is yet another decision affirming the new principles that emerged from the Waksdale case. This serves as a reminder that the strict new manner in which the Court of Appeal in Waksdale assessed termination clause enforceability is here to stay. It is therefore crucial for employers with employment contracts that are more than a year old to take proactive measures in reviewing existing termination provisions for outdated language and subsequently creating and implementing new employment contracts if it is necessary to do so.
When drafting new employment contracts, employers should be mindful that other strategic legal considerations apart from the termination provisions need to be made when asking an employee to sign a new employment contract. This is because other legal technicalities could result in a new employment contract being unenforceable, which would still result in the same outcome of an employee being entitled to common law benefits.
For assistance in reviewing existing employment agreements or strategically implementing new and enforceable employment contracts, please contact our lawyers.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.