Ontario Employers Beware: Common Termination Language Held Unenforceable
Ontario Employers Beware: Common Termination Language Held Unenforceable
In recent years, termination clauses seeking to limit employees’ entitlements have come under increasing scrutiny from Ontario courts, culminating in the Waksdale decision that heavily upset the apple cart.
While the decision in Dufault v The Corporation of the Township of Ignace[1] is not as impactful as that in Waksdale, it is another ruling that requires employers to revisit their template employment contracts and offer letters.
In Dufault, the Ontario Superior Court of Justice found that a termination clause was contrary to the Employment Standards Act, 2000 (“ESA”) and unenforceable, in part because it gave the employer “sole discretion” to terminate the employee’s employment “at any time”.
Background
In November 2022, Ms. Dufault entered into a fixed term employment agreement with the Township of Ignace for a term ending on December 31, 2024.
The Township terminated Ms. Dufault on a without cause basis on January 26, 2023, nearly two years prior to the end of the fixed term. Upon her dismissal, the Township gave two weeks’ pay in lieu of notice in accordance with the “without cause” termination provision within the employment agreement.
The Decision
After Ms. Dufault sued for wrongful dismissal, seeking payment of the full fixed-term, the Court found that the termination clause in Ms. Dufault’s employment agreement was unenforceable because it contravened the ESA. The Court awarded Ms. Dufault damages for 101 weeks’ salary and benefits, less amounts already paid, representing the balance owing for the remainder of the fixed term.
The Court found the termination clause was unenforceable because it:
- Referenced termination “for cause”, which is a broader standard than is found in the ESA or its regulations, and suggests a common law approach to wrongful dismissal;
- Limited payment upon dismissal “without cause” to base salary, whereas the ESA provides that an employee is entitled to the more expansive definition of “regular wages”, which includes vacation pay; and
- Included language giving the employer “sole discretion” to terminate the employee’s employment “at any time”.
The third point is likely to be the most impactful. The Court found that a statement that an employer may terminate “at any time” contravenes the ESA because the right of an employer to dismiss is not absolute. The court noted, for example, that the ESA prohibits an employer from terminating an employee on the conclusion of an employee’s leave (section 53) or in reprisal for attempting to exercise a right under the ESA (section 74).
Takeaways For Employers
Employers should be reviewing their template employment contracts and offer letters in response to the Dufault decision. Language suggesting an employer can terminate an employee without cause at the employer’s “sole discretion” or “at any time” is commonly included in termination clauses and should be adjusted. Such language increases the risk that an employer will be liable for providing an employee common law damages upon termination, which is typically a much higher amount than the minimum entitlements set out in the ESA.
Additionally, this case is a reminder of the inherent risks associated with fixed term employment agreements (especially fixed term agreements with lengthy durations). Where a termination clause within a fixed term agreement is found to be unenforceable, then the employer is generally liable to pay damages equivalent to the balance owing under the contract.
To learn more or for assistance with your employment agreements, contact a member of McMillan’s Employment and Labour Relations Group.
[1] Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029.
by Ricki-Lee Williams and Kyle Lambert
A Cautionary Note
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2024
Insights (5 Posts)View More
Deadline for VRCA Compliance Extended Again: The Latest Development in Stablecoin Regulation
On September 26, 2024, the CSA announced a further extension of the compliance deadline applicable to stablecoins and other crypto assets.
Canada Proposes Stricter Supply Chain Requirements to Tackle Forced and Child Labour
The Government of Canada has launched public consultations on expanding the import prohibition on goods produced by forced labour.
McMillan’s 2024 Employment and Labour Webinar
This program will provide an overview and discuss trending topics within the employment lifecycle and provide cross-country case law and legislative updates.
Carbon Border Adjustment Mechanisms – the Future of Global Carbon Policy?
CBAMs complicate the energy sector by adding carbon intensity considerations to markets, impacting both domestic compliance and international competitiveness.
OSFI 2023 – 2024 Annual Report: Major Developments at a Glance
Overview of OSFI's annual report released on October 15, 2024, highlighting its key initiatives and priorities.
Get updates delivered right to your inbox. You can unsubscribe at any time.