In Bertsch v. Datastealth Inc., 2024 ONSC 5593, the Ontario Superior Court found that a termination provision limiting an employee’s entitlements to the statutory minimums under the Employment Standards Act, 2000 (“ESA”) was enforceable.
Facts
In this case, the Defendant (employer) brought what is referred to as a Rule 21 motion to determine whether the termination provision was enforceable and, if so, to dismiss the employee’s claim for wrongful dismissal. The idea, which proved to be right, was that if the termination provision was enforceable, then the employee’s whole claim should be dismissed. The sole issue on the motion was the proper legal interpretation of the termination provision in the employee’s employment agreement.
The Plaintiff was employed for eight and a half (8.5) months prior to his termination. Upon termination, the Plaintiff was given four (4) weeks’ pay in lieu of notice, which was higher than the one (1) week’s notice or pay he would have been entitled to pursuant to the ESA. The Plaintiff argued that the termination provision was void and unenforceable because it did not comply with the ESA and Regulation 288/01 by purporting to allow termination for cause, without notice, whether or not there was “willful misconduct, disobedience or willful neglect”. The Plaintiff sought damages of 12 months’ pay in lieu of notice (i.e., about $300,000).
For context, under Regulation 288/01, an employee is not entitled to notice of termination or termination pay under the ESA if they are guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer. However, the standard of “willful misconduct” required under Regulation 288/01 is a higher standard than “just cause” at common law, and therefore, a termination provision that purports to allow termination for “just cause”, without notice, would be illegal and unenforceable.
In this case, the employer successfully took the position that its termination provision did not suffer from this defect. However, unlike the typical course, the employer asked the Court to rule on the enforceability of its termination provision at an early stage of the litigation by bringing a Rule 21 motion.
Decision
The Ontario Superior Court granted the employer’s motion, finding that a Rule 21 motion could be used to determine the enforceability of the termination provision. The Court found that the termination provision did not breach the ESA or Regulation 288/01. The Court held there was no reasonable alternative interpretation of the relevant provisions that might result in an illegal outcome (i.e., there was no reasonable interpretation which would be contrary to the minimum requirements of the ESA and its regulations). The Court further found there was no ambiguity in the termination provision which could favour the Plaintiff’s position that it was unenforceable. The exclusion of common law notice in the termination provision was clear and was enforceable, and the limitation of compensation owed upon termination was also clear and enforceable. In the end, the Plaintiff’s termination entitlements were limited to those prescribed by the ESA and the claim was struck out without leave to amend.
In Our View
While this is a welcome decision for employers in Ontario, it also serves as another reminder for employers of the importance of carefully drafting termination provisions and reviewing them regularly to ensure that any and all provisions that touch on termination are compliant with the ESA statutory minimums and its regulations, and are otherwise valid and enforceable. In the event that they are not, the common law presumption of “reasonable notice” will govern, and will serve to provide employees with much more generous entitlements than the statutory minimums outlined in the ESA. Considering that the case law regarding the interpretation and enforceability of termination provisions is constantly evolving, it is important for employers to seek legal advice regarding the enforceability of their existing employment agreements, as well as any newly drafted employment agreements.
With respect to the choice of procedure in this case, we note that the employee’s employment was terminated on June 7, 2024, the lawsuit was commenced shortly thereafter, the motion was heard on October 7, 2024, and the decision was issued on October 8, 2024. This is extremely fast relative to the speed with which matters are usually heard and is an example of an efficient use of the Rules of Civil Procedure. The parties were able to do this due to their use of a Rule 21 motion. Rule 21 motions can be effective in certain circumstances. Here, it was effective because the outcome of the case largely hinged on the legal interpretation of a contractual provision. Not every case is that straightforward and may require a more fulsome hearing, particularly where facts are in dispute. If you are an employer, you will also want to be very confident in the enforceability of your termination provision. That said, when the case is appropriate for it, Rule 21 motions can be a fast and cost-effective way to dispose of a case.
For more information, please contact Kyle Shimon at 343-996-4932 or Samara Belitzky at 613-404-4285.
