Recently, termination provisions in employment contracts have been subject to increased scrutiny by the courts. As a result, there are a growing number of decisions detailing the ways in which these provisions can inadvertently contravene applicable employment standards legislation. Post-Waksdale, the outcome in such cases is typically the unenforceability of the termination provision as a whole – to the detriment of the employer.
One of the most recent decisions on this issue is Ghazvini et al. v. Canadian Imperial Bank of Commerce. Although the decision is not necessarily groundbreaking, it is nevertheless notable for its application of Waksdale in the context of a termination provision citing the Canada Labour Code (or “Code”).
Background
Mr. Ghazvini and Ms. Rose (collectively the “Plaintiffs”) were employed as Mobile Investment Consultants with CIBC. Following a restructuring which led to the termination of their employment, the Plaintiffs sued the CIBC for wrongful dismissal, alleging that the termination provision in their employment contract was unenforceable.
Termination of Employment
By CIBC for Cause – CIBC may terminate your employment at any time without advance notice, or pay in lieu of notice, for Cause. Cause includes, but is not limited to, dishonesty, fraud, breach of trust, failure to perform your duties in a satisfactory manner, a breach of the Code, failure to obtain or maintain any required RLAs, failure to complete the pre-employment screening process to the satisfaction of CIBC, providing false, misleading or inaccurate information during the hiring process, a breach of any other term or condition of your employment, and any act or omission recognized as Cause under applicable law. If your employment is terminated for Cause, you will have no entitlement to any notice of termination, severance or any other damages whatsoever. (the “For Cause Provision”)
By CIBC without Cause – CIBC may terminate your employment at any time without Cause. If your employment is terminated without Cause, you will receive two weeks’ notice or pay in lieu of such notice, or a combination thereof, for each completed year of service, provided that you sign a full and final release in a form satisfactory to CIBC (the “Release”). The total period of notice or pay in lieu of notice, or combination thereof, shall be no less than three weeks and no more than eighteen months. Pay in lieu of notice may be provided in a lump sum, or by way of periodic payments and may be subject to mitigation, at the discretion of CIBC, in accordance with applicable laws.
If you do not sign the Release or if your employment is terminated within three months following the start of your employment, you will only receive your minimum entitlements pursuant to applicable employment standards legislation, and will not be entitled to any additional notice of termination, pay in lieu of such notice, or severance pay. (the “Without Cause Provision”)
Of note, there was no dispute between the parties as to the following:
- The Code applied to the parties’ employment relationship,
- CIBC had paid the Plaintiffs their minimum entitlements under the Code, and
- If the impugned termination provision was unenforceable, the Plaintiffs would be entitled to damages in lieu of reasonable notice of termination at common law.
Decision
The court accepted the Plaintiffs’ argument that the For Cause Provision was unenforceable. More specifically, the court concluded that the For Cause Provision violated the Code because it was ambiguous, noting that most of the items listed within it were overly broad. In other words, the items listed may or may not in fact amount to just cause under the Code, depending on the context and surrounding circumstances of each case. Consequently, the court held that the For Cause Provision violated the minimum statutory requirements under the Code and failed to rebut the presumption that the Plaintiffs were entitled to reasonable notice of termination at common law.
In considering the Plaintiffs’ argument with respect to the Without Cause Provision, the court reviewed case law that examined employment contracts providing for termination “at any time”, including Dufault and, more recently, Baker, Jones, Li, and Chan. The court noted that compared to Ontario’s Employment Standards Act (or “ESA”) (which prohibits termination after a leave or as a reprisal, as discussed in Dufault), the Code offers even greater protection against termination “at any time” by virtue of its unjust dismissal scheme. Whereas the ESA operates in tandem with the presumptive contractual right at common law of an employer to terminate an employee with notice by creating minimum statutory notice and severance provisions, the Code instead displaces this right by creating a statutory framework for dismissal. Accordingly, the court indicated that “[s]aying that an employee whose employment is subject to the [Code] can be terminated “at any time” is even more misleading under the [Code] than it is under the ESA” (Para. 76). Nevertheless, the court ultimately refused to rule on the issue of the enforceability of the Without Cause Provision, having already found that the With Cause Provision was unenforceable and therefore that the entire termination provision was invalid.
Although the employment contract in this case also contained a standard saving provision, the court refused to apply it to salvage the defective termination provision. The court reiterated that such clauses are intended to make a termination provision compatible with future changes to applicable employment standards legislation and must not be relied upon to rectify a conclusory provision that directly conflicts with the existing statute.
In the end, the court awarded seven (7) months’ notice of termination to Mr. Ghazvini and twelve (12) months’ notice of termination to Ms. Rose. The Plaintiffs’ damages in lieu of notice included compensation for their 2022 annual bonus, as well as the salary, commission, and benefits they would have earned during the notice period, less the amounts already paid to them by CIBC.
In Our View
Until now, it was not clear whether Waksdale – which stands for the proposition that an otherwise legal without cause termination provision can be rendered unenforceable by an illegal just cause termination provision – would only apply in Ontario. This is because Ontario uses the statutory standard of “wilful misconduct”, whereas all other Canadian jurisdictions use the standard of “just cause”.
However, this decision reinforces the principle that when a statute uses a term such as “just cause”, it will be up to the courts and not the contracting parties to determine what is and what is not just cause. It follows that any termination provision that seeks to define just cause by listing examples of what it includes runs the risk that the clause will be found to violate the applicable employment standards legislation, thereby invalidating the termination provision in its entirety. Further, although the court did not comment on the “at any time” issue specifically, the commentary provided highlights the risk that courts, particularly those in Ontario, are likely to rely on reasoning arising under provincial jurisdiction cases when faced with determining whether a termination provision is Code-compliant. Employers who are concerned about these risks should carefully review their current employment contract templates with legal counsel and make appropriate changes before a dispute arises.
For more information, please contact Steven Williams at 613-697-6869 or Lauren Jamieson at 613-404-5058.
