A recent decision of the Ontario Superior Court of Justice provides yet another example of the growing number of ways in which a termination provision in an employment agreement can inadvertently contravene the Employment Standards Act, 2000 (the “ESA” or the “Act”), with the ultimate result being the unenforceability of the entire provision. In light of this decision, employers should immediately review their employment agreements with legal counsel in order to ensure that any changes that may be required to strengthen the current language of their contracts can be promptly and properly implemented.
Facts
In Dufault v. The Corporation of the Township of Ignace (2024 ONSC 1029), the plaintiff was initially hired by the Township of Ignace (the “Township”) in late 2021. In early 2022, the plaintiff transitioned into a new position with the Township as a Youth Engagement Coordinator and, in November of that same year, she signed a fixed-term agreement specifying that her employment in that role would continue through to December 31, 2024.
On January 26, 2023, the plaintiff’s employment with the Township was terminated on a without cause basis. At the time of the termination of her employment, the plaintiff was in receipt of a base salary of $75,000 per year, as well as various benefits including life insurance, critical illness insurance, accidental death and dismemberment insurance, extended health and dental benefits, long-term disability benefits, and a pension.
In terminating the plaintiff’s employment, the Township relied on Article 4.0 of the fixed-term agreement, which contained both a “with cause” (clause 4.01) and a “without cause” (clause 4.02) termination provision. Specifically, Article 4.0 stipulated as follows:
4.01 The Township may terminate this Agreement and terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee’s employment is terminated with cause, no further payments of any nature, including but not limited to, damages are payable to the Employee, except as otherwise specifically provided for herein and the Township’s obligations under this agreement shall cease at that time. For the purposes of this Agreement, “cause” shall include but is not limited to the following:
(i) upon the failure of the Employee to perform the services hereinbefore specified without written approval of Municipal Council and such failure shall be considered cause and this Agreement and the Employee’s employment terminates immediately;
(ii) in the event of acts of willful negligence or disobedience by the Employee not condoned by the Township or resulting in injury or damages to the Township, such acts shall be considered cause and this Agreement and the Employee’s employment terminated immediately without further notice.
4.02 The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows:
(i) the Township will continue to pay the Employee’s base salary for a period of two (2) weeks per full year of service to a maximum payment of four (4) months or the period required by the Employment Standards Act, 2000 whichever is greater. This payment in lieu of notice will be made from the date of termination, payable in bi-weekly installments on the normal payroll day or on a lump sum basis at the discretion of the Township, subject at all times to the provisions of the Employment Standards Act, 2000.
(ii) with the exception of short-term and long-term disability benefits, the Township will continue the Employee’s employment benefits throughout the notice period in which the Township continues to pay the Employee’s salary. The Township will continue the Employee’s short-term and long-term disability benefits during the period required by the Employment Standards Act, 2000 and will pay all other required accrued benefits or payments required by that Act.
(iii) all payments provided under this paragraph will be subject to all deductions required under the Township’s policies and by-laws.
(iv) […]
In accordance with clause 4.02, the Township provided the plaintiff with two weeks’ termination pay, which amounted to a total gross payment of $2,884.61. It also continued her benefits – with the exception of her pension – for a period of two weeks.
In response, the plaintiff began legal proceedings against the Township for breach of contract, and subsequently brought a motion for summary judgement in the matter. The plaintiff took the position that the termination provisions in question were contrary to the ESA and were thus unenforceable. Accordingly, she sought damages equivalent to 101 weeks’ base salary and benefits, less amounts already paid, representing the period remaining under the fixed-term agreement.
Decision
At the outset, the court was tasked with determining whether Article 4.0 of the fixed-term agreement was in fact enforceable. Applying the stricter standard for achieving compliance with the ESA demanded by more recent appellate jurisprudence, the court ultimately found in favour of the plaintiff in holding that the termination provisions in question, as drafted, contravened the ESA in three distinct ways.
The first and second findings that supported the court’s decision to invalidate the termination provision were not novel and had already been established in previous decisions, notably rendered by the Ontario Court of Appeal. However, the third finding is new and the judge’s corresponding reasons are not found in previous cases.
First, the court noted that neither the ESA, nor the regulations made under it refer to the possibility of a termination “with cause”. Rather, Ontario Regulation 288/01 (Termination and Severance of Employment) made under the ESA simply indicates that employees who are “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” are not entitled to notice of termination or termination pay. Accordingly, in the court’s view, clause 4.01 – which explicitly referenced termination “with cause” – implied a common law approach to wrongful dismissal by giving the Township the right to withhold termination pay and severance pay in the case of a termination “with cause” in circumstances where the ESA would not necessarily allow the Township to do so. Although the Township attempted to argue that the grounds for termination “with cause” listed in the contract essentially equated to the grounds for termination specified in Ontario Regulation 288/01, the court did not agree. Instead, it found that the Township had seemingly conflated the grounds for termination under the ESA with a common law standard that is not present anywhere in the Act or in its regulations.
Second, the court held that though clause 4.02 required the payment of the employee’s base salary during the notice period, the expressions “base salary” and “regular wages” do not have the same meaning. By using the phrase ‘base salary’, instead of a more broadly inclusive term, such as ‘regular wages’, the clause failed to guarantee that all the employee’s minimum termination entitlements would be provided during the statutory notice period which, as the court noted, could include compensation that is more broad than only base salary. As such, the court found that the Township had violated section 60 (Requirements during notice period) of the ESA. The court also took issue with the fact that the clause gave the Township the option to provide the employee with termination pay in bi-weekly installments, which it indicated violated section 61 (Pay instead of notice) of the Act.
Third, and quite notably, the court accepted the plaintiff’s argument that clause 4.02 misstated the ESA when it gave the Township “sole discretion” to terminate the employee’s employment “at any time”. Highlighting that the ESA expressly prohibits the termination of an individual’s employment after a protected leave (section 53 – Reinstatement) or in reprisal for attempting to exercise a right under the Act (section 74 – Reprisal prohibited), the court confirmed that the employer’s right to dismiss is not absolute. With this in mind, the court agreed that a termination provision which allowed the employer to terminate ‘at any time’ violated the ESA, and this became one of several reasons that the court relied upon to invalidate the termination provision in the employee’s contract in this case.
In the absence of an enforceable provision for the early termination of the fixed-term agreement, the court determined that the plaintiff was entitled to be paid the balance of her contract. As a result, she ended up walking away with a damages award totaling $157,071.57. This was more than $150,000.00 above what the employer had initially paid to her.
In Our View
In this case, although the employer relied specifically on clause 4.02 of the contract to terminate the plaintiff’s employment, the court examined both the “with cause” and “without cause” provisions of Article 4.0, finding that each one separately contravened the ESA. As was made clear by the Ontario Court of Appeal in Waksdale v. Swegon North America Inc., the invalidity of a “with cause” provision in a contract can impact the enforceability of a “without cause” provision in that same contract, as employment agreements – including in particular their termination provisions – must be interpreted as a whole and not on a piecemeal basis. As a result, employers should ensure that all aspects of their termination provisions are valid and enforceable based on current law, regardless of the basis on which they expect that they may ultimately terminate an individual’s employment.
However, the greater significance of this decision is the new ground broken by the judge in finding that a termination provision which allows for termination ‘at any time’ will violate the ESA. Given the outcome in this case, employers should ensure that any potentially problematic language currently in their termination provisions (i.e., that might improperly expand the scope of the employer’s right to dismiss) is reviewed and addressed.
For more information or for assistance in reviewing your employment agreements, please contact Samara Belitzky at 613-404-4285 or Kyle Shimon at 343-996-4932.
