Much Ado about Nothing: Dufault at the Court of Appeal
One of the most notable employment law cases of 2024 was the summary judgment decision rendered in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”). At issue was the enforceability of an early termination provision in a fixed-term employment contract.
In her reasons, Justice Pierce concluded that the Dufault termination provision contravened the Employment Standards Act, 2000 (the “ESA”) in three ways:
it used the wrong standard of worker misconduct to deny any entitlement to notice or pay-in-lieu of notice. Specifically, the contract incorporated the common law concept of “cause” rather than the ESA’s higher threshold of “wilful misconduct” (the latter of which requires intentional wrongdoing);
it calculated dismissal entitlements using only “base salary” instead of the broader category of “regular wages” as required by the ESA; and
it permitted the employer to end the worker’s employment “at any time” and at its “sole discretion”. Such language fails to account for circumstances when dismissal is prohibited by the ESA (for example, when an employee complains they are not being paid statutory overtime properly and is fired in an act of employer reprisal).
The first two of Justice Pierce’s reasons for voiding the termination clause were based in established precedent (as we previously noted when reviewing the Dufault summary judgment decision). However, her Honour’s third rationale, which takes issue with an employer stating it can end the employment relationship “at any time” and at its “sole discretion”, was quite novel. The Court’s disapproval of such language sent a thunderbolt through the employment law world, as these terms had been commonly included in employment contracts used across Ontario.
Many employers have since found their existing termination clauses challenged due to the inclusion of “at any time” and “sole discretion” language. Thus, when the Township of Ignace expressed an intention to appeal Justice Pierce’s decision, it garnered significant attention.
The Appeal
In bringing its appeal, the Township swung for the fences.
It started by asking the Court of Appeal to sit a special five judge panel (rather than the usual three). The purpose of this request was to have the Court of Appeal reconsider, and overturn, its seminal decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391 (“Waksdale”). The request was denied.[1]
When the Court of Appeal thereafter considered the merits of the Township’s challenge to Justice Pierce’s decision, things went no better. The Township’s appeal was dismissed in its entirety and appeal costs in the amount of $15,000.00 were awarded to the worker.
Interestingly, the Court of Appeal addressed and affirmed only the first of the three grounds upon which Justice Pierce had voided the Dufault termination clause (i.e. that the employer had used the wrong threshold for misconduct in its contract). The other two rationales (including the use of “at any time” and “sole discretion” language) were not considered by the Court of Appeal.
In choosing to not comment (either positively or negatively) on what many view as the most consequential part of the Dufault summary judgment decision, the Court of Appeal explained:
Given our conclusion that the “for cause” termination clause of the employment contract is unenforceable as contrary to the ESA and that, pursuant to Waksdale, this renders all of the termination provisions unenforceable, it is not necessary to consider the appellant’s arguments that the motion judge erred in finding the “without cause” termination clause also unenforceable as contrary to the ESA, and we expressly do not rule on that submission. The appellant argued that the motion judge’s findings in relation to the “without cause” termination clause may affect other employment contracts. In our view, resolution of the issues the appellant raises regarding the “without cause” termination clause should be left to an appeal where it would directly affect the outcome. [emphasis added]
Takeaway
The Court of Appeal thus took a pass at providing a definitive answer of whether the use of “at any time” and “sole discretion” language is a fatal flaw for termination clauses. The argument over the enforceability of such terms remains to be litigated in future cases.
In the meantime, employers who have used “at any time” and “sole discretion” language in their existing employment agreements are left in the lurch. They will continue to face ambiguity as to the utility of these contractual termination provisions. Likewise, employees who, in their own employment agreements, spot the language Justice Pierce took issue with should reach out to experienced legal counsel. They may have a much greater dismissal entitlement than what their written contract prescribes.
Vey Willetts LLP is an Ottawa-based employment and labour law boutique that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.
[1] You can read more about Waksdale here. In a nutshell, Waksdale established the principle that illegality found in any part of a termination clause invalidates all termination provisions contained in an employment contract.