In the perhaps never-ending battle between employers and employees with respect to the issue of the enforceability of employment contracts, score another victory for employees and their position that employment contracts must be crystal clear before the courts will uphold them.
In the case of Howard v Benson Group, 2015 ONSC 2638 (CanLII) the Honourable Justice A. Donald K. MacKenzie found the following contractual provision to be null and void and therefore legally unenforceable:
[8.1] Employment may be terminated at any time by the Employer and any amounts paid to the Employee shall be in accordance with the Employment Standards Act of Ontario. [sic]
The case was brought pursuant to Rule 21 of the Rules of Civil Procedure for a determination of the enforceability of the termination provision. The defendant employer had terminated the plaintiff employee after nearly two years of employment and relied upon the contractual provision for the position that employment could be terminated upon the payment of the plaintiff’s minimum statutory entitlements.
The plaintiff argued that the clause was unenforceable for three reasons:
- First, clause (8.1) fails to explain what is meant by the words “amounts paid”. Does this payment (“amounts paid”) include the plaintiff’s base salary as well as benefits or any bonuses, or is the payment limited to base salary alone? If the latter option is the true meaning then the plaintiff argued that the same would be a violation of sections 60 and 61 of the Employment Standards Act, 2000.
- Second, there is an ambiguity with respect to what is meant by the term “any”? Does this mean that the defendant retained a discretion to decide whether or not it would provide the plaintiff as employee with any payments upon dismissal of his employment? If so, the plaintiff argued that such a discretion would be contrary to the Employment Standards Act, 2000.
- Finally, how is one to interpret the word “amounts” in the phrase “any amounts paid”, as found in clause (8.1)?
Basically, the plaintiff argued that the termination provision offended the provisions of the Employment Standards Act, 2000 by failing to take account of the employee’s continued right to the receipt of benefits throughout the notice period .
In resolving that the termination provision was legally unenforceable Justice MacKenzie made the following remarks:
 I am persuaded that having regard to the context of the plaintiff’s employment with the defendant, the provisions of the Employment Contract as a whole subject to the provisions of the E.S.A. and the language used in clause (8.1) in particular do not support the proposition put forward by the defendant. I regard the language used in clause (8.1) to be sufficiently ambiguous as to the true extent of the plaintiff’s entitlement under the E.S.A. and in the result, that ambiguity must be construed against the defendant again having regard to the power imbalance that exists between an employer and employee as a matter of course. Although an employment contract in most instances, such as the present, is not a contract of adhesion in the same way a policy of insurance is a contract of adhesion, I am not prepared to find that the Employment Contract as a whole and clause (8.1) in particular operate to nullify, or detract from, an implied term under the common law requiring “reasonable notice” for the termination of the employment of the plaintiff.
In the result the court found the clause to be legally unenforceable. As to the plaintiff’s measure of damages, that issue was to be resolved following a mini-trial with respect to the plaintiff’s effort to mitigate his damages. Given the positions advanced by counsel, that decision may well be the subject of a further post – provided that the parties do not settle the case before returning to appear before Justice MacKenzie.
So what did the employer do wrong? As previously considered in the post No Termination Agreement Without Benefits, the failure to specifically take account of an employee’s statutory right to the continuation of benefits during the notice period can be fatal to a contractual termination provision.
Although the case considered in the No Termination Agreement Without Benefits post, Stevens v. Sifton Properties Ltd., 2012 ONSC 5508 (CanLII), was not expressly referenced by Justice MacKenzie in his analysis, one does note that the case was expressly referenced in the plaintiff’s argument.
And while Justice MacKenzie's decision may not be wholly surprising to regular followers of this issue, given the current competing opinions on what will qualify as legally sufficient (see e.g. the decision in Ford v. Keegan, 2014 ONSC 4989 in which Justice Price of the same court took a much different view – canvassed by this blog in Judge says 30-Day Notice Provision is Okay), the Howard case serves as an important endorsement of the approaches taken in Stevens and Wright v. The Young and Rubicam Group of Companies (Wunderman), 2011 ONSC 4720.
Takeaways for Employees with Labour Pains
As with all posts to look at the enforceability of contractual provisions purporting to limits an employee’s entitlements on termination, the takeaway for employees with labour pains is that it is often prudent to seek a professional legal opinion before agreeing to accept that which an employer offers on termination – even if the employer purports to terminate the employment relationship is accordance with both the terms of a signed employment contract and the provisions of the Employment Standards Act.
Takeaways for Employers with Labour Pains
The takeaway for employers is to use professionally drafted employment agreements. As the Howard case demonstrates, the courts in Ontario will not hesitate to find ambiguities in what might otherwise appear to be a clear contractual provision. Moreover, as the Howard case further demonstrates, getting the wording of a contractual termination provision correct is an ‘all or nothing’ proposition; either the employer is allowed to rely on the contractual provision limiting the employee’s entitlements or it is not. If the employer is not able to rely on such provisions, then the amount of notice and/or severance to which an employee may be entitled will typically be much, much greater than may have been anticipated. (See e.g. the post ONSC Awards Four Months Notice to Employee With Less Than One Year of Service, in which the Ontario Superior Court of Justice sitting at Ottawa awarded an employee dismissed after only 51 weeks of service four months of pay in lieu of reasonable notice. In that case the employer also had a written employment agreement, which was later conceded to be legally unenforceable.)--
As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.