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<\/a><\/div>\nDo Ontario employers have the right to terminate an employee\u2019s employment \u201cat any time\u201d and in their \u201csole discretion\u201d?<\/p>\n
In Dufault v. The Corporation of the Township of Ignace<\/b><\/em>, 2024 ONSC 1029<\/a>, the Honourable Madam Justice H. M Pierce of the Ontario Superior Court of Justice sitting at Thunder Bay held that they do not.<\/p>\n <\/p>\n Once again we are looking at a decision on a motion for summary judgment interpreting a contractual termination provision<\/a>.<\/p>\n The termination clauses in Article 4.0 of the employment contract state:<\/p>\n 4.01 The Township may terminate this Agreement and terminate the Employee\u2019s employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee\u2019s 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\u2019s obligations under this agreement shall cease at that time. For the purposes of this Agreement \u201ccause\u201d shall include but is not limited to the following:<\/p>\n 4.02 The Township may at its sole discretion<\/b> and without cause terminate this Agreement and the Employee\u2019s employment thereunder at any time<\/b> upon giving to the Employee written notice as follows:<\/p>\n The plaintiff argued that the termination clause is illegal and unenforceable for several reasons:<\/p>\n In finding for the plaintiff, Justice Pierce provided the following reasons for decision:<\/p>\n [18] Employment contracts are generally interpreted differently than other commercial agreements in order to protect the interests of employees: see Wood v. Fred Deeley Imports Ltd. 2017 ONCA 158 [Wood] at paras. 26 \u2013 28.<\/p>\n [19] At para. 25 of Henderson v. Slavkin et al. 2022 ONSC 2964 [Henderson] Madam Justice Brown concisely summarized the basic principles for the determination of the enforcement of a termination clause as set out in Wood at para. 28 as follows:<\/p>\n \n “1. Employees have less bargaining power than employers when employment agreements are made; [20] At paras. 26-28 in Henderson the court also summarized the following principles for interpreting employment contracts:<\/p>\n \n “1. An employment agreement that is not consistent with the ESA is invalid regardless of the actual arrangements made with the employee on termination and the employee becomes entitled to common law damages; [21] In Waksdale v. Swegon North America Inc. 2020 ONCA 391 [Waksdale] the Court of Appeal rejected the argument that the invalidity of the termination for cause provision had no impact on the termination with notice provision. At para. 10 the court held:<\/p>\n \n “An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal.”\n<\/p><\/blockquote>\n [22] The Court of Appeal also took this approach in Rahman v. Cannon Design Architecture Inc. 2022 ONCA 451 at para. 30. The court held that if a particular termination provision in the contract violates the ESA, all the other termination provisions in the contract are invalid and unenforceable.<\/p>\n [23] In Machtinger v. HOJ Industries Ltd. [1992] 1 S.C.R. 986 p. 1001 the Supreme Court of Canada discussed the circumstance where one clause of an employment contract is null and void by operation of statute:<\/p>\n \n “[I]f a term is null and void then it is null and void for all purposes and cannot be used as evidence of the parties\u2019 intention.”<\/b>\n<\/p><\/blockquote>\n [24] In conclusion, the enforcement of termination clauses in employment contracts is heavily influenced by the principles of protecting employee interests, interpreting contracts as a whole, and ensuring compliance with the Employment Standards Act. Courts are inclined to invalidate any part of the contract that fails to meet these criteria, emphasizing the importance of clear, compliant drafting in employment agreements.<\/p>\n<\/blockquote>\n In finding that the termination provision was not enforceable, Justice Pierce writes the following:<\/p>\n [29] In para. 46 of Wood, the court held that \u201can employer cannot contract out of, or waive, an employment standard\u201d by subsequent compliance with an employment standard. Thus, it is the wording of the employment contract at the time it is entered into, and not what the employer does upon termination, that the court must evaluate.<\/p>\n \u2026<\/p>\n [31] The termination provisions of this employment contract, as drawn, contravene the ESA in several respects.<\/p>\n \u2026<\/p>\n [46] [T]he plaintiff submits that Article 4.02 misstates the ESA when it gives the employer \u201csole discretion\u201d to terminate the employee\u2019s employment at any time. I agree with this submission.<\/b> The Act prohibits the employer from terminating an employee on the conclusion of an employee\u2019s leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute.\n<\/p>\n<\/blockquote>\n As a further twist, because the contract was for a fixed term, the court found that the plaintiff was entitled to the balance of the contract or 101 weeks of wages.<\/p>\n This case has quickly become the subject of much discussion in the Ontario employment bar. While the court found several reasons to invalidate the termination provision, the one receiving the motion attention is the finding at paragraph 46 of the court\u2019s reasons for decision.<\/p>\n Candidly, and as I have already said online, I believe Justice Pierce is correct in her analysis, especially at paragraph 46. Employers in Ontario do not have the right, even in what is primarily an \u201cat-will\u201d jurisdiction, to terminate an employee\u2019s employment at \u201cany\u201d time or within their \u201csole discretion.\u201d The right to terminate an employee\u2019s employment without cause does not mean a complete absence of the fettering of the right to terminate. As Justice Pierce observes, there are several times when an employer is prohibited from terminating an employee\u2019s employment. In addition to the constraints imposed by the ESA, there are limitations imposed by other statutes including the Occupational Health and Safety Act and the Human Rights Code. Employer cannot use contractual language to usurp the reinstatement powers of various employment protection agencies and tribunals.<\/p>\n While employers retain an incredible amount of discretion to terminate when to terminate an employee\u2019s employment, and the list of possible reasons for termination is long, the list is not infinite.<\/p>\n If one must concede that an employer could not, for example, terminate an employee\u2019s employment in response to the employee\u2019s announcement that she wishes to take pregnancy leave, then one must also concede that an employer in Ontario cannot terminate employment in its \u201csole discretion\u201d and at \u201cany\u201d time.<\/p>\n Personally, I do not believe that it is difficult to draft language that provides that an employer may terminate the employment of an employee without cause and for any reason not prohibited by statute upon providing an employee with certain prescribed entitlements.<\/p>\n The takeaway for employers is that it will likely pay to have your contracts of employment reviewed, and re-reviewed by experienced employment counsel both before presentation to a new employee and on a periodic basis. The courts’ expectations are constantly changing and if the comments online are correct, then it is likely that several employment agreements contain language similar to that impugned in the Dufault<\/em> decision. <\/p>\n The time to learn that your contract has a problem is before it is challenged in court.<\/p>\n The takeaway for employees is that it will almost invariably pay to have your contract of employment reviewed before accepting any severance offer. Just because you signed a contract ostensibly limiting you two only two weeks\u2019 severance does not mean that is all to which you are entitled.<\/p>\nFacts<\/h3>\n<\/p>\n
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Decision of the Ontario Superior Court<\/h3>\n<\/p>\n
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2. Employees are likely unfamiliar with employment standards in the ESA and thus are unlikely to challenge termination clauses;
3. The ESA is remedial legislation and courts should therefore favour interpretations of the ESA that encourage employers to comply with the minimum requirements of the Act and extend its protection to employees;
4. The ESA should be interpreted in a way that encourages employers to provide better than minimum standards.”\n <\/p><\/blockquote>\n
2. Employment contracts must be interpreted in their context in a way the parties reasonably expected them to be interpreted at the time when they entered into it. The court should not strain to create ambiguity where none exists when interpreting the termination clause;
3. When the court interprets the termination clause, the onus is on the employer to prove that the clause is valid.”\n<\/p><\/blockquote>\n\n
Commentary<\/h3>\n<\/p>\n
Takeaways for Employers<\/h3>\n<\/p>\n
Takeaways for Employees<\/h3>\n<\/p>\n
Contact Me<\/h3>\n<\/p>\n
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