Waksdale’s Reign Continues

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In our article, The Inescapable Rule of Waksdale, we wrote about the Ontario Court of Appeal (“ONCA”) decision in Rahman v. Cannon Design Architecture Inc., which eliminated the exception to the “rule of Waksdale” that was briefly established at the Ontario Superior Court of Justice (“ONSC”) level. As we predicted last year, the termination provisions of employment agreements continue to be litigated and this year has determined that a “one size fits all” approach is preferred. This is further supported by the recent ONSC decision in Henderson v. Slavkin et al.  This latest case extends the principles from Waksdale regarding “just cause” provisions to any clauses in a contract that mention just cause. In this case, the employment contract referred to “just cause” in provisions outside of the termination clause.

The Henderson case is noteworthy also for its discussion of mitigation and the deductibility of CERB from the damage award.

a)   The Facts

The Plaintiff, Rose Henderson, commenced employment as a receptionist in April 1990, at the oral surgery dental office of the Defendants. On May 26, 2015, the Defendants provided their employees with written employment agreements. Ms. Henderson signed the employment agreement and received consideration in the amount of $500.00.

The relevant clauses of the employment agreement are as follows:

13.   Your employment may be terminated without cause for any reason upon the provision of notice equal to the minimum notice or pay in lieu of notice and any other benefits required to be paid under the terms of the Employment Standards Act, if any. By signing below, you agree that upon receipt of your entitlement under the Employment Standards Act, no further amount shall be due and payable to you, whether under the Employment Standards Act, any other statute or common law.

18.  Conflict of Interest…a conflict of interest includes, but is not expressly limited to the following:(a) Private or financial interest in an organization with which does business [sic] or which competes with our business interests;

(b) A private or financial interest, direct or indirect, in any concern or activity of ours of which you are aware or ought reasonably to be aware;

(c) Financial interests include the financial interest of your parent, spouse, partner, child or relative, a private corporation of which the [sic] you are a shareholder, director or senior officer, and a partner or other employer;

(d) Engage in unacceptable conduct, including but not limited to soliciting patients for dental work, which could jeopardize the patient’s relationship with us.

A failure to comply with this clause above constitutes both a breach of this agreement and cause for termination without notice or compensation in lieu of notice.

19.  Confidential Information. You recognize that in the performance of your duties, you will acquire detailed and confidential knowledge …You agree that you will not in any way use, disclose, copy, reproduce, remove or make accessible to any person or other third party, either during your employment or any time thereafter, any confidential information relating to our business, including office forms, instruction sheets, standard form letters to patients or other documents drafted and utilized in the Employer’s practice except as required by law or as required in the performance of your job duties.

For clarity, confidential information includes…

In the event that you breach this clause while employed by the Employer, your employment will be terminated without notice or compensation in lieu thereof, for cause

On November 1, 2019, the Defendants informed their employees that one dentist would be retiring in March 2020, and they were provided with written confirmation of the termination of their employment effective April 30, 2020.  This was sufficient notice to meet the ESA requirements.

Ms. Henderson brought a wrongful dismissal action claiming that the employment agreement was unconscionable, contained provisions that were contrary to the Employment Standards Act, 2000 (the “ESA”), and therefore illegal.

The parties agreed prior to trial that if is found that Ms. Henderson was wrongfully dismissed, the notice period was 18 months.

b)    The Issues

The core issues in this case were:

  1. Was Ms. Henderson wrongfully terminated?
    • Is the termination clause in her employment agreement enforceable?
    • If yes, is the termination clause unconscionable?
  2. If damages are awarded,
    • Did Ms. Henderson mitigate her damages?
    • Should the Canada Emergency Response Benefit (“CERB”) payments received by Ms. Henderson be deducted from her award?

c)     The Decision

Clause 13

The Plaintiff claimed that the clause contracted out of the ESA by stating that Ms. Henderson will be paid her benefits rather than have them continued throughout her statutory notice period. She challenged the termination clause on the ground that it was not open to the parties to contract out of the ESA.

Justice Brown did not find any ambiguity in the clause, and based on its wording, it was clear to her that the parties intended to comply with the requirements of the ESA. The clause was not contrary to or inconsistent with the provisions of the ESA.

Clause 18

The Plaintiff contended that conduct that falls short of wilful misconduct cannot constitute dismissal for cause.

Under the ESA, when employment is terminated for just cause, the employee is still entitled to their minimal entitlements under the ESA unless the employer can establish that the employee is guilty of wilful misconduct or wilful neglect of duty (see O. Reg. 288/01: Termination and Severance of Employment).

The Defendants argued that the provisions enumerated, subparagraphs (a) to (d), all bespeak wilful misconduct or wilful neglect of duty.

Justice Brown found that the subparagraphs of the provision were overly broad, unspecific and ambiguous. As such, the clause was inconsistent with the ESA; therefore, it was invalid and to be set aside.

Clause 19

Ms. Henderson took the position that Clause 19 failed to stipulate that any misconduct must be wilful and not trivial to support a termination without notice, as required by the ESA.

Justice Brown found that Clause 19 was invalid and must be set aside. The clause was not clear in what circumstances the disclosure of confidential information may occur without immediate termination for cause without notice.

Mitigation of Damages

Ms. Henderson began her search for employment in January 2021, and was able to secure employment as a frontline worker in a long-term care home in May 2021.

The Defendants took the position that Ms. Henderson failed to mitigate her damages as she did not obtain employment for 18 months following the termination of her employment. The Plaintiff, however, asserted that her termination occurred at the height of the COVID-19 pandemic in April 2020, when many businesses, including dental offices, were closed. Ms. Henderson maintained that positions were not easily obtainable, she acted reasonably in her efforts to mitigate her damages, and she made significant efforts to secure alternate employment.

Justice Brown found that in normal circumstances, the steps taken by Ms. Henderson would not meet the test for mitigation. However, there was a unique set of factors here that need to be considered in assessing the reasonableness of her ability to mitigate damages and find comparable employment:

  1. The timing of the closing of the business and the termination at the height of the pandemic – the pandemic and the significant closures of businesses had an impact on Ms. Henderson’s search for employment.
  2. Henderson’s age at the time of her termination – she was 63 years old at the time and that may have made finding another comparable position more difficult.
  3. Henderson moved to Glencoe, Ontario, which is a smaller market outside of the Toronto area – she decided not to remain in Toronto following the termination of her employment as she was single and lost her only source of income. She moved to Glencoe, where she had friends and family, and rents were lower.

Justice Brown concluded that, given the unique situation in which the Plaintiff was in, there should be only a small deduction for the length of time it took her to mitigate in the circumstances. She acted reasonably and did her best to find work once she moved to Glencoe. Therefore, the notice period should be reduced by 3 months given the unique set of circumstances.

Canada Emergency Response Benefit

Ms. Henderson received CERB during the reasonable notice period, totalling $10,000. The Defendants argued that this amount should be deducted from her damages award.

Justice Brown found that the CERB received did not amount to a compensating advantage or collateral benefit, and should not be deducted from Ms. Henderson’s damages for the following reasons:

  1. There is a real risk that Ms. Henderson will be required to repay the CERB, in due course;
  2. Henderson’s receipt of CERB was not sufficiently connected to the Defendants’ breach of the employment contract; and
  3. CERB is not an indemnity for wage loss arising from the employer’s breach of the employment contract.

d)   Conclusion

It’s not unusual for a statement such as “a breach of this policy is just cause for termination without notice” to appear in documents that are part of the employment contract as well as other policy documents. Not all policies are part of the employment contract. The Henderson case is yet another reminder for employers to review their employment contracts and possibly any ancillary documents to determine if they refer to “just cause” for termination and require a Waksdale amendment.