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| Inna Koldorf |
5. Termination clauses
In a decision issued late in the year and highly anticipated by many, the Court of Appeal declined to opine on disputed language in a without cause termination clause.
As readers might recall, in our top five employment law cases of 2020 list we included the Court of Appeal’s decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, in which the Court of Appeal first concluded that where a termination with cause provision in an employment contract violates the ESA, all of the termination provisions in the same contract are unenforceable. The Court of Appeal confirmed this finding in its decision in Rahman v. Cannon Design Architecture Inc., [2021] O.J. No. 4769, which we included in our top five employment law cases of 2022.
In Dufault v. The Corporation of the Township of Ignace, 2024 ONCA 915 the parties entered into a fixed-term contract. The employee’s employment was terminated without cause and she brought a summary judgement motion, arguing that the termination clauses in the contract were unenforceable and that she
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The Ontario Superior Court of Justice agreed with the employee. It found the termination clauses to be unenforceable for several reasons, including:
1. The termination for cause provision allowed the employer to terminate the employee’s employment for conduct that falls short of the ESA’s “wilful misconduct” standard without paying the employee her minimum statutory entitlements, in violation of the ESA;
2. The without cause termination provision provided for the payment of “base salary,” rather than “regular wages,” contrary to the ESA; and
3. The termination without cause provision permitted the employer to terminate the employee’s employment without cause “at any time” and “at its sole discretion” when the ESA prohibited it from doing so in certain circumstances.
2. The without cause termination provision provided for the payment of “base salary,” rather than “regular wages,” contrary to the ESA; and
3. The termination without cause provision permitted the employer to terminate the employee’s employment without cause “at any time” and “at its sole discretion” when the ESA prohibited it from doing so in certain circumstances.
As a result, the court awarded the employee $157,071.57 in damages, representing her expected earnings for the remainder of the term of the contract.
The employer appealed the decision, giving hope to lawyers practicing in this area that perhaps the Court of Appeal would take another look at its decision in Waksdale and reconsider the current state of the law which renders without cause termination provisions unenforceable when with cause provisions in the same contract violate the ESA.
On Dec.19, 2024 the Court of Appeal released its decision on the appeal. The court concentrated its findings on the deficiencies in the for cause provision. It found that “cause” in the clause at issue is defined more broadly than “willful misconduct” is defined in the ESA, and therefore the contracting clause fails to comply with the minimum standards set by the ESA, rendering it unenforceable.
Much to the disappointment of the management side of the employment bar, the Court of Appeal declined to rule on the enforceability of the without cause provision on its own (and, specifically, the “at any time” and “at its sole discretion” language, which the lower court judge found to be problematic). Instead, the Court of Appeal relied on Waksdale to conclude that since the with cause provision was unenforceable, so was the without cause provision. The Court of Appeal added that since it was a three-judge panel which heard this appeal (rather than its full five-judge panel), it was bound by its own decision in Waksdale and could not revisit it, and that it therefore had no reason to review the “at any time” and “at its sole discretion” findings of the lower court.
Honourable mention goes to Bertsch v. Datastealth Inc. 2024 ONSC 5593 where a termination clause, which limited the employee’s entitlement upon termination of employment to the statutory minimums prescribed by the ESA, was upheld by the Superior Court of Justice. This in itself is no small feat given our courts’ decisions on termination provisions in the last few years, but the employer in this case was also successful in disposing of the claim at an early stage of the proceedings by bringing a motion to interpret the termination clause of the contract. In determining that the termination clause was enforceable, the Superior Court of Justice struck the employee’s claim at an early stage.
This is the second part of a two-part series. Part one: Top Ontario employment law decisions of 2024.
Inna Koldorf is a partner in Miller Thomson LLP’s labour and employment law group, where she advises employers on labour, employment and human rights issues.
The opinions expressed are those of the author and do not reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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