Another One Bites the Dust: Understanding the Law of Termination Clauses in Ontario
2024 got off to a bang in the world of employment law. In a recent trial level decision, an Ontario judge has found yet another termination clause illegal and unenforceable. In so doing, the court accepted an entirely novel argument for why termination provisions may be read as impermissibly contracting out of the mandatory requirements of the Employment Standards Act, 2000 (the “ESA”).
The case at issue is Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”). It concerned a Youth Engagement Coordinator who was dismissed on a without cause basis after roughly 1 year and 3 months of service. In accordance with the ESA, the worker was provided with 2 weeks of pay and benefits continuation in lieu of advance notice of dismissal.
A complicating factor for the employer was that it had signed a fixed-term contract with the worker that was not set to expire until December 31, 2024. Perhaps then somewhat predictably, upon dismissal, the employee sued and sought payment for the balance of the fixed term. At stake was 101 weeks of wages and benefits (amounting to $157,071.57).
The employer sought to rely upon sections of the fixed-term contract that allowed for early termination when mounting its defence in court. In turn, the worker made three arguments as to why these termination provisions were illegal and unenforceable:
the fixed-term contract permitted dismissal for “cause” absent notice or pay-in-lieu of notice, a standard which falls short of the ESA’s requirement for “wilful misconduct” to justify a dismissal absent notice or pay-in-lieu;
the without cause portion of the fixed-term contract specified payment using “base salary” alone rather than “regular wages”, as is required by the ESA (with the latter term including compensation categories such as commission pay); and
the language suggesting the employer may end the worker’s employment “at any time” and at its “sole discretion” fails to account for circumstances in which termination is prohibited by the ESA (such as during, or at the conclusion of, a statutory protected leave of absence).
The first of these two arguments were quite standard. Indeed, we have written previously about the problems posed by including just cause language and referring to only base wages in termination provisions.
What makes the Dufault decision notable, however, is that Justice Pierce accepted the employee’s third argument. To the best of our knowledge, Ontario courts have not previously taken issue with language regarding an employer’s discretion to terminate the employment relationship “at any time” on a without cause basis in this manner.
The reasoning we have on point in Dufault is quite brief. Justice Pierce devotes only a single paragraph to the issue, saying:
Thirdly, the plaintiff submits that Article 4.02 misstates the ESA when it gives the employer “sole discretion” to terminate the employee’s employment at any time. I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee’s 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.
It will be interesting to see if this line of reasoning is followed in future Ontario court decisions.
Justice Pierce is correct when she says that employers are not free to terminate the employment relationship at any time, and for any reason, by simply providing sufficient notice (or pay-in-lieu thereof). Employers are indeed prohibited from ending the employment relationship in this manner if their reasons are motivated by the fact that the worker had been absent for a protected reason (such as on reservist or paternity leave). Similarly, dismissing an employee as a reprisal for their attempting to exercise statutory rights is strictly prohibited by the ESA.
On the other hand, to reach the conclusion that Justice Pierce does in Dufault requires the court to read-in language (and intentions) that are not explicitly written in the contract. Simply because an employer retains discretion to end the employment agreement at any time does not necessarily equate to saying it may do so even when otherwise prohibited by statute. It is possible more specific language evidencing an intention to contravene the ESA may be required by the courts in future cases.
Takeaway
Drafting and enforcing termination provisions in employment contracts can often feel like a game of whack-a-mole. Rarely does a year pass without the courts accepting new and creative arguments by plaintiff counsel as to why commonly used words and phrases in termination provisions should be disallowed. And the consequence of getting termination provisions wrong can prove costly. Upon losing at trial, the Dufault employer ended up owing nearly two years’ worth of pay and benefits to a worker who had only been in its employ for 15 months.
For employers, the Dufault decision is the latest reminder of why it is important to have your employment agreements reviewed by experienced legal counsel on a regular basis.
For employees, never assume that the termination provisions in any contract you may have signed will be enforceable in future. To truly understand your rights, be sure to consult with an employment lawyer prior to taking any action related to your dismissal entitlements.
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 across Ontario. To speak with one of our lawyers, contact us at: 613-238-4430 or info@vwlawyers.ca.