We have previously written about Ontario courts striking down termination provisions of employment agreements that attempt to remove an employee’s entitlement to receive common law notice in the event of termination without cause, where the agreement also contains a for-cause termination provision that breaches the Employment Standards Act 2000 (ESA).

This article recaps this trend and looks at a recent Ontario Superior Court of Justice decision in which an employee argued that she was entitled to common law notice after being terminated without cause because of the conflict of interest and confidential information clauses in her agreement that violated the ESA. 

The case shows that courts may also be prepared to disregard without cause termination provisions where other clauses in the contract permit the employer to terminate the employee without notice or compensation in lieu of notice in circumstances not permitted by the ESA.

Courts have decided that termination provisions are unenforceable where the just cause termination provision violates the ESA

There has been a string of wrongful dismissal claims by employees arguing that provisions in employment agreements stating that if the employee is terminated without cause, the employer will only pay the minimum notice period required under the ESA and nothing else such as common law notice, are unenforceable. Ontario courts have been sympathetic to such claims in some circumstances.

Courts have held that:

• broad termination for just cause provisions that remove entitlement to any notice are void for violating the ESA because the Termination and Severance of Employment Regulation states that statutory notice must be provided except in certain listed circumstances, such as where the employee “has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”; and
• termination provisions in employment agreements need to be read as a whole, so that if the just cause termination provision is void, the without cause provision is also unenforceable. This is the case even if the without cause provision provides for the payment of statutory notice in accordance with the ESA.

This has meant that some employees have not been limited to the minimum ESA notice periods and have been able to claim lengthier common law notice periods from the court. 

Oral surgeons issued written employment agreements as they approached retirement

In Henderson v Slavkin, the plaintiff employee worked as a receptionist in the oral surgery dental offices of the defendant employers in Bolton, Ontario. She had worked there since 1990 without a written employment agreement.

In 2015, the defendants started to make retirement plans and sought to implement employment agreements so that the employees could know what to expect. In exchange for a $500 payment, the plaintiff signed an agreement that included a clause permitting termination without cause upon provision of the minimum notice required under the ESA.

In November 2019, the defendants told all employees of their impending retirements and that all staff would be terminated on April 30, 2020. The plaintiff continued to work for the defendants during this time but later brought a claim for wrongful dismissal seeking common law notice.

Employee argued conflict of interest and confidential information clauses invalidated termination provisions

The plaintiff argued that two clauses of her employment agreement were not in compliance with the ESA, which invalidated the agreement.

Conflict of interest clause was invalid

The employment agreement required the plaintiff to ensure that her personal interests did not conflict with the employer’s interests. It included a non-exhaustive list of examples of conflicts of interest. It said that “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.” 

Justice Brown agreed with the plaintiff that breaching the clause would not necessarily amount to wilful misconduct or wilful neglect of duty. Some of the examples in the clause were broad, unspecific and ambiguous. As a result, her Honour decided that the clause was invalid and must be set aside. 

Confidential information clause also set aside

The plaintiff also agreed not to use, disclose or copy any confidential information relating to the business, except as required by law or for the performance of job duties. The agreement specified the same consequence for breach, which is terminated without notice or compensation in lieu.

Justice Brown found that it was not clear in what circumstances the disclosure of confidential information may occur without immediate termination for cause without notice. Given that there may be situations in which confidential information could be inadvertently disclosed where it was not wilful, the clause did not respect the ESA and was also invalid.

Court awarded common law damages, reduced for failure to mitigate

Justice Brown found that the plaintiff was wrongfully dismissed. The conflict of interest and confidential information clauses were not in compliance with the ESA “and therefore invalidated the employment contract.”

The plaintiff was therefore entitled to common law notice, and the parties agreed on an applicable notice period of 18 months. Her Honour reduced this by three months, finding that it took the plaintiff 12 months to start looking for work. A small deduction for the length of time it took her to mitigate was warranted in light of the pandemic, the plaintiff’s age and her move to a smaller centre.

Contact Haynes Law Firm in Toronto for Guidance on Employee Termination and Employment Contracts

As this decision shows, it is really important for employers to ensure that their employment agreements are up-to-date and correctly limit entitlement to common law notice. Terminated employees also need advice as they might be entitled to more than it appears on the face of their contracts. Haynes Law Firm can help. We ensure our employee clients leave nothing on the table when negotiating the terms of their dismissal so they have the resources they need while they seek new employment. We also help employers manage employee terminations to limit their exposure to legal claims. Please contact us online or call us at 416.593.2731.