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Failure to comply with Employment Standards Act minimum requirements is fatal to employers

Employment contracts set out the terms of employment and an employee's obligations. Included in the employment contract is usually a clause that sets out what happens when the employment relationship ends, and this clause is often the most litigated.

When a termination clause is properly drafted, it can limit a dismissed employee to what they are owed under the Ontario Employment Standards Act, 2000 ("ESA"). However, if the clause is missing certain entitlements or is ambiguous, a terminated employee can argue that they are not bound by the employment agreement, and can sue for a much longer notice period, and therefore, more money.

In 2016, the Ontario Court of Appeal released a decision, Oudin v Centre Francophone de Toronto, 2016 ONCA 514, where a termination provision was upheld despite the fact that it did not specifically set out each and every obligation the employer owes to a terminated employee under the ESA. This was widely considered a triumph for employers in Ontario.

Very recently, the Ontario Court of Appeal decision released Wood v Deeley Imports Ltd., 2017 ONCA 158. When Ms. Wood was dismissed from her job, she argued she was not bound by her employment contract because her contract did not state she was entitled to benefits during her notice period. She argued she should receive a longer notice period at common law and the Court agreed with her, awarding her 9 months of reasonable notice.

The termination clause in her employment contract read:

... If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph, except for any amounts which may be due and remaining unpaid at the time of termination of your employment. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.

The key for employers is that the Court's finding was not based on the fact that the contract failed to expressly provide for benefits continuation during the notice period. Instead, it was based on the Court's interpretation that the provision outright excluded benefits continuation because of the "all inclusive" language in Ms. Wood's contract. The Court of Appeal viewed this language as an attempt to exclude the ESA requirement relating to benefit contribution during the notice period. The difference between Oudin and Wood is crucial because it leaves open the possibility that a termination provision can be enforceable despite being silent on specific entitlements, so long as it does not expressly exclude them.

If a termination clause excludes an entitlement, the entire clause is void

In a recent Court of Appeal case, North v Metaswitch Networks Corporation, 2017 ONCA 790, Mr. North took a similar position as Ms. Wood. Mr. North argued that his employment contract limited him to his base salary only and excluded his commission. His employer defended and argued that because there was a severability clause in the contract, then if any part of the termination clause is found to be illegal, then only that portion should be struck out. The severability clause stated:

If any part of the Agreement is found to be illegal or otherwise unenforceable by any court of competent jurisdiction, that part shall be severed from this Agreement and the rest of the Agreement's provisions shall remain in full force and effect.

However, the North decision cited the rule from Wood: where a termination clause contracts out of one employment standard, the court is to find the entire termination clause void, and cannot merely void the offending portion and leave the rest of the termination clause as enforceable.

Employers must therefore ensure that the termination clauses in their employment agreements meet the requirements of the Employment Standards Act, and remember that a severability clause will not save a poorly drafted termination clause.

If you are terminated from your employment, you need to know that you may be entitled to significant monetary compensation for payment in lieu of notice. The amount of compensation may depend if you signed a contract, and whether the termination clause in the contract is enforceable. It is crucial to have a good employment lawyer that is qualified to assess the validity of any termination clause. This has become a very specialized area of the law and it is becoming increasingly difficult for employers to enforce termination clauses. This can obviously be very important for those who lose their jobs as they will likely encounter difficult financial times after losing their job. A good employment lawyer can help.

To reach the authors of this blog, Jean-Francois Lalonde and Marie Kwan, call 613.232.5773.

Jean-Francois Lalonde is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Vice & Hunter LLP. He has extensive experience practicing in the areas of employment law and is a part-time professor at La Cité Collégiale teaching Employment Law for Paralegals.

Marie Kwan is an articling student with Vice & Hunter LLP. She has experience assisting in employment law matters and competed in a labour law moot while in law school.

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