While an employer is entitled to terminate an employee at any time, the employee may bring a wrongful dismissal action if the employer does not provide sufficient notice or pay in lieu of notice, as required by law.
Some employment agreements attempt to remove an employee’s entitlement to receive common law notice in the event of termination without cause. This article looks at how courts interpret such provisions, along with a recent decision of the Court of Appeal for Ontario that found an agreement’s termination provisions were unenforceable.
Employment agreements may attempt to reduce the length of notice for termination without cause
Employment agreements normally contain provisions relating to termination. Some agreements state that if the employee is terminated without cause, the employer will pay the minimum notice period required under the Employment Standards Act 2000 (ESA) but will not pay any additional amounts, such as notice that would have been required under the common law.
As we have previously reported, while employers have a statutory obligation to give a minimum period of notice to employees terminated without cause, notice periods under the common law may be more generous.
Courts have decided that termination provisions are unenforceable where the just cause termination provision violates the ESA
Since the case of Waksdale v Swegon North America Inc., courts have been finding provisions that remove common law notice for without cause terminations unenforceable where the agreement also contains a just cause termination provision that violates the ESA.
Firstly, courts have held that broad termination for just cause provisions that remove the entitlement to any notice may violate the ESA and be void. This is because, according to the Termination and Severance of Employment Regulation (Regulation), statutory notice must be provided except in certain 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”. Attempting to contract out of the obligation to pay statutory notice for a just cause termination where the employee’s conduct does not rise to the level of wilful misconduct is therefore not permitted under the ESA.
Secondly, courts have not been prepared to sever such a just cause termination provision from the other termination provisions in the employment agreement. In other words, courts have found that the correct approach is to determine whether the termination provisions in an agreement read as a whole violate the ESA. If the just cause termination provision is void for violating the ESA, 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.
Court of Appeal re-examines a just cause termination provision
In Rahman v Cannon Design Architecture Inc., the Ontario Court of Appeal was called on to re-examine a just cause termination provision that the Superior Court of Justice decided did not violate the minimum standards of the ESA.
CannonDesign employed the employee as a senior architect, principal and office practice leader for over four years. She was terminated without cause and paid four weeks of base salary. When she joined the employer, she signed an offer letter which restricted her notice to the minimum amount specified in the ESA in the event of without cause termination and also said:
CannonDesign maintains the right to terminate your employment at any time and without notice or payment in lieu thereof if you engage in conduct that constitutes just cause for summary dismissal.
The Superior Court of Justice upheld these provisions, deciding that there was a mutual intent to comply with the minimum ESA standards. The judge gave weight to the fact the termination provisions were the object of specific negotiation after the employee obtained independent legal advice. The employee appealed.
Court of Appeal decides that the just cause termination provision violated the ESA
Justice of Appeal Gillese, writing for the Court of Appeal, decided that the judge erred by allowing the employee’s sophistication and access to independent legal advice, coupled with the parties’ subjective intention to not contravene the ESA to override the plain language in the termination provisions.
Her Honour explained that ESA notice and termination pay must be given for all terminations, even those for just cause, except in the circumstances set out in the Regulation, where the employee is guilty of wilful misconduct. The wilful misconduct standard requires evidence that the employee was “being bad on purpose.”
Her Honour noted that nothing in the just cause termination provision limited its scope to just cause terminations for wilful misconduct. As a result, the contract purported to give CannonDesign the right to terminate the employee without notice or payment for conduct that constitutes just cause alone. This contravened the ESA and was therefore void.
The termination provisions were unenforceable
Finally, Justice of Appeal Gillese, following the approach in cases like Waksdale, held that if a termination provision in an employment agreement violated the ESA, all the termination provisions in the contract were invalid.
As a result, the Court of Appeal decided that the termination provisions in the contract were void and could not be relied upon by the employer.
The Superior Court of Justice has continued to follow this approach and finds termination provisions unenforceable (see, for example, the recent decision of Nicholas v Dr. Edyta Witulska Dentistry Professional Corporation).
Contact Haynes Law Firm in Toronto for Guidance on Employee Termination and Employment Contracts
Haynes Law Firm helps employers and employees throughout Ontario achieve effective solutions to legal issues and conflict management in employment law and civil litigation. 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. We carefully draft employment contracts to limit reasonable notice. Please contact us online or call us at 416.593.2731.