The Ontario Superior Court of Justice released a decision on June 14th, 2024, holding that a termination clause in an employment contract violated the Employment Standards Act (“ESA”) and as such was unenforceable. As a result of this unenforceability, the employee was entitled to receive pay in lieu of reasonable notice at common law.
Background
In Wilds v. 1959612 Ontario Inc., the plaintiff, Ms. Barbara Wilds, brought a claim for wrongful dismissal against her former employer, Gibson. At issue was whether Ms. Wilds was entitled to reasonable notice of dismissal by reason of the termination provisions in her employment contract being unenforceable.
Ms. Wilds was discharged without cause and without notice after 4.5 months, at 52 years old. Ms. Wilds sought damages in lieu of reasonable notice for a period of 5 months, reimbursement of business expenses incurred before the termination of her employment, mental distress damages, and punitive damages.
The Termination Clause
Ms. Wilds’ employment contract contained a “termination without cause” and a “termination with cause” provision, both of which were held to be unenforceable. Of particular interest is the “termination with cause” provision, which provided as follows:
We may terminate your employment for just cause at any time without notice, pay in lieu of notice, severance pay, or other liability, other than any notice, pay in lieu of notice or severance required pursuant to the applicable employment standards legislation. [emphasis added]
The provision then included a list of conduct that would constitute just cause under the contract, some of which fell below the “wilful misconduct” standard for just cause enumerated under the ESA, which standard is higher than that for just cause at common law. For example, just cause under Ms. Wilds’ contract could include “a material breach of this Agreement or our employment policies”; “unacceptable performance standards”; “repeated, unwarranted lateness, absenteeism or failure to report for work”; “personal or off-duty conduct (including online conduct) that prejudices the Organization’s reputation, services or morale”; and “any conduct that would constitute just cause pursuant to the common law.”
The Court’s Decision
At common law, there is a presumption that an employee terminated without just cause is entitled to reasonable notice or pay in lieu of such notice. This presumption can be rebutted if the employment contract clearly specifies some other period of notice. However, if the contract violates the ESA, then the presumption is not rebutted, and the employee retains their common law entitlement to reasonable notice or pay in lieu thereof.
In this case, the Court found that the termination provisions violated the ESA. As such, the clauses were held to be unenforceable and did not rebut the common law presumption that Gibson was required to provide reasonable notice on termination of Ms. Wilds’ employment. The Court made note of several longstanding principles which have governed the interpretation of employment contracts.
Among other requirements, a termination provision’s wording must be clear. Courts will read an ambiguous termination provision in a manner which provides the greatest benefit to the employee. In most cases, the interpretation more favourable to the employee will be that the provision contravenes the ESA, entitling them to reasonable notice at common law.
Moreover, “saving provisions” in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards, and cannot reconcile a provision that is in direct conflict with the ESA from the outset.
Finally, the Court emphasized the need to protect “vulnerable employees who hold unequal bargaining power in contract negotiations,” and noted that this is indeed one of the purposes of the ESA itself.
In this case, the Court took issue with the inclusion of certain categories of just cause. Namely, the categories enumerated under the contract were held to violate the ESA to the extent that they captured instances where an employee would not necessarily have done something deliberately. At a minimum, the inclusion of these categories was held to create confusion and ambiguity. The words “other than any notice, pay in lieu of notice or severance required pursuant to the applicable employment standards legislation” in the termination clause were seen as insufficient to save the provision.
Takeaway
Termination provisions in employment contracts are meant to create certainty for employers and employees alike. Ironically, the result of an ambiguous termination clause is often that the common law governs, notwithstanding that the parties may both have intended to contract below the “reasonable notice” standard.
Seeing as it is not uncommon for courts to find that a termination clause is invalid for contravening the ESA, employers should carefully review their contracts with an experienced employment lawyer. It is important for employers to be as clear as possible in the wording of their contracts, in order to avoid any likelihood that a Court will hold its provisions to be ambiguous and thus unenforceable.