Do Ontario employers have the right to terminate an employee’s employment “at any time” and in their “sole discretion”?
In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the Honourable Madam Justice H. M Pierce of the Ontario Superior Court of Justice sitting at Thunder Bay held that they do not.
Facts
Once again we are looking at a decision on a motion for summary judgment interpreting a contractual termination provision.
The termination clauses in Article 4.0 of the employment contract state:
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 as 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 terminates 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) any further entitlements to salary continuation terminate immediately upon the death of the Employee.
- (v) such payment and benefits contributions will be calculated on the basis of the Employee’s salary and benefits at the time of their termination.
The plaintiff argued that the termination clause is illegal and unenforceable for several reasons:
- Violation of the Employment Standards Act (ESA): Article 4.01 allows the Township to withhold termination and severance pay in situations where they must be provided under the ESA.
- Misinterpretation of "for cause" termination: The agreement's "for cause" wording permits the Township to deny statutory termination and severance pay, invoking a common law standard that is inapplicable to the ESA.
- Inclusion of non-ESA specified conduct: The contract covers employee behaviors not mentioned in the ESA, which does not disqualify employees from minimum notice, termination, or severance pay for "for cause" termination.
- Exclusion of "regular wages": Article 4.02 of the clause excludes all "regular wages," only referring to the employee's base salary, which contradicts section 60 of the ESA by not mentioning vacation pay.
- Misstatement of ESA conditions: Article 4.02 claims "sole discretion" for termination "at any time," a condition prohibited by the ESA in certain circumstances.
Decision of the Ontario Superior Court
In finding for the plaintiff, Justice Pierce provided the following reasons for decision:
[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 – 28.
[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:
"1. Employees have less bargaining power than employers when employment agreements are made;
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."[20] At paras. 26-28 in Henderson the court also summarized the following principles for interpreting employment contracts:
"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;
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."[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:
"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."[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.
[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:
"[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’ intention."[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.
In finding that the termination provision was not enforceable, Justice Pierce writes the following:
[29] In para. 46 of Wood, the court held that “an employer cannot contract out of, or waive, an employment standard” 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.
…
[31] The termination provisions of this employment contract, as drawn, contravene the ESA in several respects.
…
[46] [T]he 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.
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.
Commentary
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’s reasons for decision.
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 “at-will” jurisdiction, to terminate an employee’s employment at “any” time or within their “sole discretion.” The right to terminate an employee’s 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’s 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.
While employers retain an incredible amount of discretion to terminate when to terminate an employee’s employment, and the list of possible reasons for termination is long, the list is not infinite.
If one must concede that an employer could not, for example, terminate an employee’s employment in response to the employee’s announcement that she wishes to take pregnancy leave, then one must also concede that an employer in Ontario cannot terminate employment in its “sole discretion” and at “any” time.
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.
Takeaways for Employers
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 decision.
The time to learn that your contract has a problem is before it is challenged in court.
Takeaways for Employees
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’ severance does not mean that is all to which you are entitled.
Contact Me
Sean Bawden is Experience. At Work.
I am an experienced employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, which is based in Ottawa. I have appeared in courtrooms all across Ontario from Stratford, to L’Orignal, to Thunder Bay.
For 2.5 years I was in-house legal counsel providing employment law advice to one of Canada’s largest corporations and appeared in labour courts and tribunals literally the world over.
I am also a part-time professor at Algonquin College teaching Employment Law. I have previously also taught Trial Advocacy for Paralegals and Small Claims Court Practice.
I can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321 x233.
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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.
This post was generated with the assistance of generative AI.
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