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Employment-Related Contract Drafting




Court Finds Termination Clause Unenforceable Due To “Just Cause” Provision

In Tan v. Stostac Inc., 2023 ONSC 2121, the Court found that the termination clause contained in the employment agreement was unenforceable and the plaintiff employee was entitled to common law notice of his dismissal.

The employee had worked for the company for almost five years before his employment was terminated as a result of adverse economic conditions relating the pandemic and/or supply chain difficulties. The employee brought a wrongful dismissal action by summary trial.

The employee’s employment contract contained the following termination clause:

The Employer may end the employment relationship at any time without advanced notice and without pay in lieu of such notice for any just cause recognized at law. 

Subsequent to the probationary period, the Employee understands and agrees that employment may be terminated at any time by the Employer providing the Employee with two (2) weeks of notice, pay in lieu of notice or a combination of both, at the Employer’s option, plus one additional week of notice (or pay in lieu) for each year of completed service to a maximum of eight (8) weeks. In addition, after completing five (5) years of continuous employment, severance pay pursuant to the Ontario Employment Standards Act, 2000 may be payable upon termination of employment in accordance with the terms of the Ontario Employment Standards Act, 2000. Upon receipt of the above notice (and severance pay if applicable) the Employee agrees that no further amounts shall be owing to him/her on account of the termination of the Employee’s employment under statute or at common law. The provisions of the Ontario Employment Standards Act, 2000, as they may from time to time be amended, are deemed to be incorporated herein and shall prevail if greater.

The Court found that the above termination provision was unenforceable for the same reasons identified by the Court of Appeal in Waksdale v. Swegon North America Inc. 2020 ONCA 391. Specifically, the “just cause” provision of the employment contract gave the employer the right to terminate the employee’s employment “without notice of payment for just cause that might fall short of non-trivial willful misconduct” (para 11). Given that the ‘just cause’ provision was found to violate the Employment Standards Act, 2000, the entire termination provision was held to be unenforceable.

The Court then concluded that the employee was entitled to seven months reasonable notice given his age (40), managerial position, and the difficult economic conditions that existed at the time.

In addition, the Court concluded that the CERB payments the employee received following his dismissal should not be deducted from the award.

Key Takeaways

This case serves as an important reminder for employers that Courts will analyze termination provisions as a whole and that one flaw in a termination provision is all it takes for a Court to determine that the provision is unenforceable.

CCPartners has extensive experience advising employers on how to create enforceable employment agreements for new and existing employees.   Click here for a list of lawyers who can help you determine if your contracts are enforceable and if not, how to ensure they are in the future.

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