A recent Ontario Superior Court of Justice (the “Court”) decision held that where a termination provision in an employment agreement violates the Employment Standards Act, 2000 [ESA], it is unenforceable irrespective of the sophistication of the parties.
In Livshin v The Clinic Network Canada Inc. [Livshin], the Court held that the employer, The Clinic Network Canada (“TCN”), could not rely on the termination provisions in its employment agreement to limit the employee’s termination entitlements because they did not comply with the minimum standards of the ESA. The Court stated that the sophistication of the employee, and the fact that he was represented by legal counsel when negotiating the employment agreement, could not save the termination provisions, which as written did not comply with the minimum standards of the ESA.
The plaintiff, Steve Livshin, has a medical degree and worked for many years in the healthcare industry. Livshin founded a medical practice called “Involved Medicine”, which was acquired by TCN. The parties engaged in negotiations leading up to the acquisition, and as part of the transaction it was agreed that Livshin would stay on with TCN as an employee. Both Livshin and TCN were represented by counsel during the negotiations.
TCN proposed a three-year term in the Employment Agreement (the “Agreement”), and during negotiations regarding various terms of the Agreement, Livshin sought to include a provision that if he was terminated before the conclusion of the three-year term of the Agreement, he would be entitled to receive payment for any remaining portion of the three-year term that was outstanding at the time of termination. TCN did not agree to this request and the signed version of the Agreement did not include this provision. The final Agreement was intended to take effect once the closing of the purchase of the shares of Involved Medicine by TCN. However, the share purchase closed six months after the intended date of closing, during which time Livshin had already commenced his role at TCN. During the year that Livshin worked for TCN, he was paid a salary, travel allowance, and benefits.
On March 27, 2020, due to a substantial COVID-19-driven decline in TCN’s business, Livshin was temporarily laid-off from his employment with TCN. Then later, on August 31, 2020, Livshin was dismissed from his employment with TCN effective immediately. After being laid off, Livshin did not conduct any work for TCN and was paid no amounts by way of salary or otherwise.
Livshin brought a claim against TCN for wrongful dismissal and argued that the “just cause” termination provision in the Agreement violated the ESA, and therefore other components of the termination clause were invalid. The defendant, TCN, argued that even if the termination clause violated the ESA, there was no imbalance of relative bargaining power between the employer and employee in this case and therefore there was no need for the Court to “protect” the plaintiff by holding that the termination clause is void.
Superior Court Decision Regarding “Just Cause” Termination Provision
With respect to the issue of the “just cause” termination provision, the Court referred to the Waksdale decision (see here) which upheld the principle that an invalid just-cause termination provision that does not meet the minimum standards of the ESA will invalidate an otherwise-valid “without cause” termination provision.
The defendant in Livshin argued that there was no imbalance of power in the employer-employee relationship in this case because the Agreement was negotiated in the context of a commercial transaction with lawyers who represented both sophisticated parties. Therefore, TCN argued that the Court did not need to lean in favour of the employee’s position or insist on strict compliance with the ESA. The Court held that there was no compelling reason why TCN should be permitted to rely on the invalid termination provisions, reasoning that termination clauses should be interpreted in a way that encourages employers to draft agreements in compliance with the ESA. In addition, Courts should favour an interpretation of the ESA that encourages employers to comply with the minimum requirements of the ESA and extend its protections to as many employees as possible.
Accordingly, Livshin’s sophistication did not validate the otherwise unenforceable termination clause, which was drafted in violation of the ESA.
The Court found that Livshin was entitled to receive payment for the balance of the fixed term in the Agreement, which was twenty months. Because the calculation of damages was based on the remaining period of the fixed term agreement, there was no duty for Livshin to mitigate his damages.
The Court also held that Livshin was not entitled to reimbursement for travel expenses for the outstanding term of the Agreement but found that he was entitled to receive 10% of his salary for the remainder of the Agreement in regard to his group benefits plan.
Lastly, the Court deducted the $8,000 that Livshin received from the Canada Emergency Response Benefit (CERB) from his overall award. Livshin was also entitled to his costs of the motion and action.
In another recent decision, Campbell-Givons v Humber River Hospital [Campbell], the Court found that analysis of the sophistication of a party is unrelated to determining whether a provision in an employment agreement violates the ESA. Campbell held that when assessing whether a termination clause violates the ESA, employee sophistication is irrelevant. According to Campbell, there cannot be a situation where a termination clause is invalid for violating the ESA for some employees, but is enforceable for others.
Livshin and Campbell declined to follow an earlier Court decision which came to an opposite conclusion, holding that a sophisticated employee ought to have known about the implications of the termination provision upon signing their employment agreement, and upheld an otherwise unenforceable termination provision that violated the ESA. The decisions in Livshin and Campbell mean that employers cannot rely on an argument that an employee was sophisticated to enforce a termination clause that does not meet the minimum standards of the ESA.
Livshin is also a reminder to employees of the risks of fixed-term agreements. Where an employer ends a fixed-term agreement prematurely, and the fixed-term agreement does not have an enforceable termination clause, the employee will be entitled to payments until the end of the remaining period of the fixed term provided in the agreement. In these circumstances, the employee will not have an obligation to mitigate their damages, regardless of the length of the fixed term.
Livshin also provides employers with a helpful development related to CERB payments received during the period of reasonable notice. Livshin held that CERB payments can be deducted from the employee’s reasonable notice period entitlements. This is good news for employers since the deduction would result in a reduced payment amount for the employee’s reasonable notice period.
This blog is provided as an information service and summary of workplace legal issues. This information is not intended as legal advice.