Overview
In a recent (and rare!) decision from the Ontario Superior Court of Justice, the Court upheld a termination provision that sought to limit the compensation to which an employee was entitled upon termination. In Bertsch v. DatastealthInc., 2024 ONSC 5593, the impugned termination provision clearly stated that the employee, if their employment was terminated, would only be owed the minimum entitlements under the Employment Standards Act, 2000 (ESA). In contrast with many such provisions that have tried and failed in this pursuit before, the Court found that this particular “ESA-only” termination clause was enforceable because it was “legal”, “clear” and “unambiguous.” The Court dismissed the former employee’s claim on this basis.
This article explores what set the termination clause in this case apart in the eyes of the Court.
Facts
The Defendant had employed the Plaintiff for about eight and a half months. When the Plaintiff was dismissed, the Defendant gave him four weeks’ pay in lieu of notice. This amount was higher than what he was entitled to under the ESA, which would have only been one week’s pay. But it was lower than what he would have been entitled to at common law had he not contracted out of his rights in this regard. The Plaintiff took issue with this and brought a claim against the Defendant. He sought twelve months’ pay in lieu of notice, which would amount to roughly $300,000.
Rule 21 Motion
A preliminary issue in this case was whether the Court could properly deal with the interpretation and application of the termination clause through the Defendant’s “Rule 21 Motion”. This is a motion brought pursuant to Rule 21 of the Ontario Rules of Civil Procedure that permits a court to dispose of a matter at the early stages without the need for a full trial. In this case, the Court determined that it could proceed in this manner because: (a) there were no facts in dispute that would necessitate a trial; and (b) the interpretation and application of the termination clause was an exercise that could readily be performed by the Court. The Court further indicated that proceeding using a Rule 21 Motion was an efficient and desirable use of the Court’s and the parties’ time.
The Termination Provision
The Court looked at the specific language of the provision, and considered it in light of the applicable legislation, being the ESA and O. Reg. 288/01 thereunder, and the applicable case law in this area (discussed in more detail below). The specific clause was as follows:
The Contractual Terms
5. Termination of Employment by the Company: If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the [ESA] and its Regulations,…including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.
You understand and agree that compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment, or pay in lieu thereof. You further understand and agree that this provision shall apply to you throughout your employment with the Company, regardless of its duration or any changes to your position or compensation.
11.(a) If any of your entitlements under this Agreement are, or could be, less than your minimum entitlements owning (sic) under the [ESA] …you shall instead receive your minimum entitlements under the [ESA]…
(h) This Agreement constitutes the complete understanding between you and the Company with respect to your employment, and no statement, representation, warranty or covenant have been made by you or the Company with respect to this Agreement except as expressly set forth herein. The parties have expressly contemplated whether there are any additional implied duties owed by the Company to you, at common law or otherwise, outside the written terms of the Agreement or under statute and confirm that there are no such obligations. This Agreement shall not be altered, modified, amended or terminated unless evidenced in writing by the Company.”
(k)… The invalidity, for any reason, of any term of this Agreement shall not in any manner invalidate or cause the invalidation of any other term thereof…
In making its decision, the Court acknowledged that termination provisions of this nature pose a unique problem for lawyers, employers, and the courts alike. Specifically, the Court provided as follows (para. 23):
“I agree that the interpretation and application of the termination clause is not a simple matter. But this is partly because the law is not very straight forward in respect of these issues. Many a lawyer has struggled to understand the distinction being discussed and to predict the likely outcome if one of these claims is litigated. Any employee would benefit from legal advice before signing any such agreement.”
Despite the apparent universal difficulty faced by those who dare seek to draft an enforceable ESA-only termination clause, the Court goes on to find that, at least in this case, the impugned clause stands up to judicial scrutiny. The Court states that “[t]he contractual terms [in this case], while not simple, are clear and unambiguous.”
In summary, the Court found that the impugned termination provision complied with the applicable legislation and case law and was, therefore, legal. The Court also found that the language was sufficiently clear and unambiguous, despite the protestations of the Plaintiff to the contrary. In so finding, this decision sets itself apart from many that have come before it, where an employer’s attempts to limit an employee’s entitlements upon termination have not been upheld. This is discussed below.
What About Waksdale?
The Court explicitly distinguished itself from Waksdale v. Swegon North America Inc., 2020 ONCA 391, which we previously reported on here and here, since in this case the termination provision did not violate the ESA. As a reminder, Waksdale’s legacy is that when one termination clause in an employment contract violates the ESA, all termination clauses are unenforceable. Waksdale’s impact on Ontario has resulted in many cases where the Courts have expanded on which termination clauses are contrary to the ESA and are thus unenforceable.
For example, this case can be contrasted with Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, a recent addition to the Waksdale discussion. In Dufault, the “without cause” provision indicated that the employee’s employment could be terminated “at any time” and at its “sole discretion.” This was deemed to violate the ESA, since there are circumstances where an employee cannot be terminated – like when an employee concludes a statutory leave. The provision was therefore unenforceable. A more in-depth analysis of Dufault can be found here.
In Bertsch v. DatastealthInc. an employer finally got the termination provision right. This case represents a comforting precedent and signals that it is possible to draft an enforceable termination clause that limits an employee’s entitlements. At this time, it is unknown whether the decision will be appealed.
The article in this update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hunter Legal LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hunter Legal LLP.