A recent Ontario Superior Court decision has poked yet another hole in employers’ standard termination clauses, prompting another wave of reviews of employment contracts since the infamous Waksdale v. Swegon North America Inc. decision. Recently, in Dufault v. The Corporation of the Township of Ignace, the Ontario Superior Court of Justice reviewed the for cause and without cause termination provisions in a plaintiff’s employment agreement. The Court found that both provisions contravened the Employment Standards Act, 2000 (the “ESA”) for the following reasons:
- The “for cause” provision wrongly disentitled employees from their statutory termination and severance pay if their employment is terminated “for cause”. Employees can only be disentitled from their statutory termination and severance pay if their employment ceases as a result of any of the circumstances enumerated in sections 2(1) and 9(1) of Regulation 288/01: Termination and Severance of Employment.
- The “without cause” provision wrongly reduced the employee’s wages during the statutory notice period. When an employee is receiving notice or pay in lieu thereof, pursuant to section 60 of the ESA, they are entitled to their “regular wages”, during that period of time. The termination clause in this case provided for the payment of “the employee’s base salary for two weeks per year of service to a maximum of four months or the period required by the ESA, whichever is greater” [Emphasis added]. It did not account for the employee’s vacation pay, paid leave days, and sick days as provided for in their employment contract.
- Termination “at any time” is not permitted by the ESA. The “without cause” provision stated that the employer could terminate the employee’s employment “at any time” and at its “sole discretion.” However, the ESA sets out certain circumstances under which an employee cannot be terminated, such as when an employee concludes a statutory leave or attempts to exercise their rights under the ESA.
The final finding by the Court is of the greatest concern as “any time” language is commonly included in termination clauses. The Dufault decision is the latest in a long line of cases expanding the categories of clauses that are inconsistent with the ESA. It is noteworthy that another Superior Court Judge rejected a similar “any reason” argument in Henderson v. Slavkin et al., 2022 ONSC 2964 (CanLII). We previously wrote about the Henderson case for other reasons. In Henderson, the Court found a termination clause to be unenforceable because of a “just cause” clause in an ancillary document.
As of the date of publication, it is unknown if the Dufault decision will be appealed. In the meantime, the Courts continue to be very receptive to arguments that termination clauses do not comply wit the ESA, making it very difficult for employers to enforce any termination clause that doesn’t provide a common law notice period.