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Author:
Jacob Love

Date:
2022.06.16

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Employment-Related Contract Drafting

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THE EMPLOYERS' EDGE

Court of Appeal: Subjective Considerations Cannot Override the Plain Language of a Termination Provision

In a decision released on June 8, 2022, the Court of Appeal for Ontario overturned the motion judge’s decision in Rahman v. Cannon Design Architecture Inc., 2021 ONSC 5961, a case we blogged on last year (read our previous blog here). The motion judge’s decision in Rahman was significant because it distinguished one of the most hotly-debated recent cases – the Ontario Court of Appeal’s decision in Waksdale v Swegon North America – finding that a provision of the employment agreement which denied entitlements upon termination for just cause did not amount to an attempt to contract out of the Employment Standards Act, 2000 (ESA). The motion judge reached this decision based on a finding that the employer and employee had equal bargaining power in negotiating the employment agreement and that they had mutual intention not to contract out of the ESA.

Facts

To recap, the employee worked for the Company as a Senior Architect, Principal and Office Leader for over four years. She was terminated without cause and was provided with four weeks’ salary as pay in lieu of notice. The employee commenced a wrongful dismissal action and subsequently moved for summary judgement asking the court to declare: (1) the ‘just cause’ termination provisions in her employment contracts were void because they conflicted with the Employment Standards Act, 2000, S.O. 2000, c. 41; and (2) that the defendant’s in the action were her common employers.

The motion judge determined that the termination provisions in the employee’s employment contracts (there were two) complied with the ESA and governed the employee’s termination. In doing so, he rejected the employee’s submission that the termination ‘for cause’ provisions violated the ESA because: the employee had received independent legal advice about the offer of employment regarding her rights at common law and under the ESA in relation to the possible termination of her employment; the employee was a “woman of experience and sophistication”; and, the parties’ subjective intention was to comply with the ESA minimum standards.

The motion judge also concluded that the employee was employed by Cannon Design Architecture Inc. (CDAI) and dismissed the action as against Cannon Design Ltd. and the Cannon Corporation because CDAI was “the entity that offered her employment and the one that paid her”.

Court of Appeal Decision

The Court of Appeal for Ontario determined that the motion judged erred by concluding: (1) the termination provisions of the employment contracts governed the employee’s termination entitlements; and, (2) the Respondents were not the employee’s common employers.

Most significantly, on the issue regarding the termination provisions, the Court of Appeal wrote:

[24]       In my view, the motion judge erred in law when he allowed considerations of Ms. Rahman’s sophistication and access to independent legal advice, coupled with the parties’ subjective intention to not contravene the ESA, to override the plain language in the termination provisions in the Employment Contracts. By allowing subjective considerations to distort and override the wording of those provisions, the motion judge committed an extricable error of law reviewable on a correctness standard: Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at para. 65. It is the wording of a termination provision which determines whether it contravenes the ESA – even compliance with ESA obligations on termination does not have the effect of saving a termination provision that violates the ESA: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 481, at paras. 43-44.

Furthermore, in accordance with its decision in Wakesdale, the Court of Appeal wrote that “ESA notice and termination pay must be given for all terminations, even those for just cause, except for ‘prescribed employees’: ESA, s. 55. The disentitlement provision is found in the ESA regulation Termination and Severance of Employment, O. Reg. 288/01. Section 2(1) of the regulation provides:

2. (1) The following employees are prescribed for the purposes of section 55 of the Act as employees who are not entitled to notice of termination or termination pay under Part XV of the Act:

3. 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 (para 27).

The termination provision at issue in this case stated that no notice or payment will be given if there is just cause to terminate. However, there was nothing in the termination provision that limited its scope to just cause terminations for wilful misconduct. Consequently, the termination provision did not give the company the right to terminate the employee’s employment without notice or payment for conduct that constitutes just cause alone (para 29).

The Court reiterated “… that if a termination provision in an employment contract violates the ESA – such as a “no notice if just cause” provision – all the termination provisions in the contract are invalid” (para 30). As a result, like in Wakesdale, the Court concluded that the entire termination provision was unenforceable even though the employer had not purported to terminate the employee for just cause. The Court remitted the action back to the Superior Court to determine the quantification of damages for failure to provide reasonable notice.

Takeaway for Employers

This case serves as an important reminder for employers that the surrounding circumstances and subjective intentions cannot override the plain language contained in the termination provision of an employment contract. The Court of Appeal’s decision in Waksdale v Swegon North America has rendered many previously well-drafted termination provisions unenforceable. Accordingly, it is essential for employers to update their employment contracts to ensure that their termination provisions are valid and enforceable.

Contact the experienced lawyers at CCPartners for assistance in drafting employment agreements or advice regarding pending or possible litigation of employment issues, including termination.

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