Employers should be reviewing their employment contracts to determine if they contain language that now contravenes the ESA, after the recent Ontario decision of Dufault v. The Corporation of the Township of Ignance.
The Ontario Superior Court of Justice released a decision on February 16, 2024, stating that a termination clause the provided the employer the “sole discretion” to terminate the employee’s employment “at any time” contravenes the Employment Standards Act, 2000.
Background
In Dufault v. The Corporation of the Township of Ignance, the plaintiff, Ms. Karen Dufault, brought a claim against her former employer, the Corporation of the Township of Ignance.
Dufault had been hired into a fixed-term contract with the Township that began on January 31, 2022. Her employment was to continue for a fixed duration, ending on December 31, 2024.
On January 26, 2023, the plaintiff’s employment was terminated immediately, on a without cause basis. The Township paid Dufault two weeks of termination pay and continued her benefits for two weeks.
Dufault brought a claim, stating that the termination clause within her employment contract was unenforceable. She sought damages equivalent to 101 weeks’ of her base salary and benefits, which represented the remaining duration of her fixed-term contract.
The Termination Clause
The employment contract contained the following without cause termination clause:
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 [emphasis added]
The Court’s Decision
The Court found that the “without cause” provision contravened the ESA. The clause only allowed for the payment of the employee’s “base salary”, however, under the ESA, the employee is entitled to claim all of her “regular wages”, including vacation pay, sick pay, and paid leave.
The Court also found that this clause was unenforceable because it allowed the employer the “sole discretion” to terminate the employee’s employment “at any time”.
Specifically, the Court stated the following in its analysis:
[46] Thirdly, the 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 result, the plaintiff was entitled to receive damages equal to what she would have received for the remainder of the duration of her fixed-term contract, totaling 101 weeks.
Takeaway
The law surrounding employment contracts and termination clauses is constantly adapting. Employers should review their employment contracts with an experienced employment lawyer to ensure that that the termination clauses are still valid and rebut the common law presumption of reasonable notice.