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Déjà Vu All Over Again: Ontario Court Strikes Down Termination Language and Awards Generous Notice Period

This has been a common theme in recent months for the Employer’s Edge, but once again, an employer’s contractual termination language has been deemed unenforceable because it did not adhere to  the Employment Standards Act, 2000.

In Lamontagne v. J.L. Richards & Associates Limited, the employer had a standard employment contract that limited employee entitlements upon termination.  In part, it stated that:

  • An employee has no entitlement to common law notice of termination;
  • The “minimum period of notice or pay in lieu of notice” under the Employment Standards Act, 2000 would constitute the employee’s “complete entitlement” to notice of termination;
  • Employment “may be terminated for cause at any time, without notice”.

The employee worked for the employer for about six and one-quarter years.  She was hired as assistant controller, and as expected, quickly progressed to controller, overseeing a staff of eight.  She was responsible for the employer’s accounting and reported to a vice-president of the company.  The employer terminated the employee without asserting just cause when she was 36 years old. 

The employer provided the employee with all amounts owing pursuant to the Employment Standards Act, 2000, but as tends to happen, the employee argued that the termination language was deficient, and so she sought her full common law entitlements upon termination.  Once again, the Court had to determine whether a pre-existing termination clause in an employment agreement was valid and enforceable.

Similar to the Ontario Court of Appeal decision in Waksdale v Swegon North America Inc. (read the Employer’s Edge blog on that decision here), the Ontario Superior Court held that the “for cause” clause was invalid, and therefore the entire termination clause was invalid.  

The Court undertook a succinct but comprehensive analysis of the precedent case law, and determined that in this case: “Considering the ordinary meaning of “for cause” in the context of the entire agreement and the circumstances, the appropriate interpretation of “for cause” is that it applies to common law and statutory cause.”  This is significant because the Employment Standards Act, 2000 has a different “for cause” threshold than the common law.  In its Regulation 288/01, the Act disentitles termination notice and severance pay from:

  • An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.

The Court decided that the termination provision in the disputed contract was unenforceable because is disentitled the employee from notice on the basis of just cause at common law, and not the more stringent threshold of statutory just cause.  This was interpreted as an attempt to contract out of the minimum standards of the ESA, and voided the entire clause.

However, that was not the only issue with this contract.  Even if the “for cause” language was legal, the “without cause” language was not.  The contract was deficient in another subtle but important way.  By limiting the employee’s entitlements upon termination without cause to only “the minimum period of notice” or pay in lieu, the contract as written disentitled the employee to their benefits during the notice period, including vacation, employee health benefits, pension plan contributions, and bonuses; each of which were specifically provided to the employee in their contract.  The Employment Standards Act, 2000 requires not only that the employee receive notice of termination or pay in lieu thereof, but that all benefits be maintained (or appropriately compensated) in the statutory notice period.  By failing to account for these benefits in the without cause termination clause, the contract disentitled the employee from their benefits entitlements, and accordingly the contract was invalid because it violated the ESA.

Given the employee’s senior position and considerable responsibility, the Court decided that she was entitled to common law notice equal to ten (10) months’ salary, plus benefits, less amounts paid and mitigation income.  Importantly, the employee was dismissed in February 2020 and the Court took into account the economic uncertainty arising from the early stages of the COVID19 pandemic in assessing the notice period.  The Court did not, unfortunately, comment on how much the pandemic impacted the notice period and we note that the ten (10) month notice period, while on the high side, did not represent a marked departure from pre-COVID wrongful dismissal assessments.

This is another expensive lesson for employers, that there is no substitute for a properly-drafted employment contract.  The professionals at CCPartners have been watching the Ontario courts strike down termination language with regularity in recent years, and are able to craft binding and enforceable clauses to put a fair and predictable limit on your obligations when terminating an employee without just cause.

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