‘It's irrelevant what the parties intended… it now has to be exactly and perfectly worded,' says lawyer discussing recent Ontario decision
“There's no such thing as a termination clause built on interpretation - it now has to be perfectly worded for it to be upheld, and the courts are going to find any avenue for viewing termination clauses on the side of the employee.”
So says employment lawyer Natasha Atyeo of Grosman Gale Fletcher Hopkins in Toronto, after the Ontario Court of Appeal upheld a lower court’s ruling that invalidated the termination provisions in an employment agreement for non-compliance with employment standards legislation.
The worker was an employee of Arista Homes Limited, a home building company based in Vaughn, Ont., for four years and nine months. Her employment was subject to an employment agreement containing a termination clause.
The termination clause stated that if the worker was “terminated for cause or you have been found guilty of wilful misconduct, disobedience, breach of employment agreement or wilful neglect of duty that is not trivial and has not been condoned by Arista, then Arista will be under no further obligation to provide you with pay in lieu of reasonable notice or severance pay whether under statute or common law.” The wording reflected what the Ontario Employment Standards Act, 2000 (ESA) defines as conduct that disentitles a worker from statutory termination pay or notice.
The clause also provided a definition of “cause” for the purposes of the agreement, which “shall include your involvement in any act or omission which would in law permit Arista to, without notice or payment in lieu of notice, terminate your employment.”
Termination without cause
Arista terminated the worker’s employment without cause and paid her four weeks’ salary in lieu of notice, as required by the ESA.
The worker sued for wrongful dismissal, asserting that the termination clause was unenforceable because it violated the ESA, leaving her entitled to common law reasonable notice.
The Ontario Superior Court agreed to the worker’s motion for summary judgment and found that the termination provision violated the ESA. The provision defining “cause” was a broader definition than the ESA, so it allowed termination without notice in circumstances in which it would be prohibited by the ESA, the court said.
The court ordered Arista to pay the worker damages equivalent to eight months’ salary in lieu of notice.
Arista appealed, arguing that the for-cause termination provision complied with the ESA and referred to the ESA’s own definitions of termination circumstances that didn’t warrant statutory notice. It also said that its intention was to comply with the ESA, not to try to get around it.
Definition of cause
The Court of Appeal agreed with the lower court that the termination clause contemplated termination in circumstances beyond those permitted under the ESA. Although the contract contemplated termination for cause based on several instances in accordance with the ESA – such as wilful misconduct, disobedience, or wilful neglect of duty – it also included “a breach of employment agreement” in that listing without any requirement that such a breach be either wilful or serious, which contravened the requirements set by the ESA, said the appeal court.
The Court of Appeal also rejected Arista’s argument that the phrase “shall include” indicated an exhaustive definition of cause. The clause, when read in full, suggested a broader scope than allowed under the ESA, the court said, noting that “shall include” suggested that circumstances other than those outlined in the clause could warrant termination.
Arista argued that its intent was to comply with the law, but the appeal court found that the contractual language itself determines compliance, and “if the language of the agreement violates the law, it is no answer for the employer to say that it did not intend this result.”
The Court of Appeal pointed to established jurisprudence requiring employment contracts to be interpreted differently than other commercial agreements, in order to protect employees who generally have less bargaining power and familiarity with employment standards. Citing Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 and Machtinger v. HOJ Industries Ltd., 1992 CanLII 102, the appeal court stated that any ambiguity in employment contracts should be resolved in favour of the employee, in accordance with the remedial nature of the ESA, and the contract be read as a whole.
“I understand the need to have remedial protections on a broad scale that protect employees from egregious termination clauses,” says Atyeo. “The problem is that it there's no grandfathering of all of these rules that are coming in, so employers have to almost pre-empt any ambiguity - anything that you say beyond quoting the exact ESA could be the reason that your termination clause doesn't get upheld.”
Termination clause unenforceable
The Court of Appeal dismissed the appeal and affirmed the lower court’s award of eight months’ reasonable notice plus costs.
The decision is an example of how the evolving landscape around termination clauses is making it hard for an employer to keep up on what’s going to violate or purport to violate the ESA, according to Atyeo.
“It's irrelevant what the parties intended with their contractual drafting, it now has to be exactly and perfectly worded, with a ‘less is more’ landscape,” she says. “Employers need to be alert to the fact that termination provisions need to be very short and very plain.”
“I really believe that this employer was trying to make a genuine attempt to comply with the ESA, but just that little addition of the words ‘or’ and ‘shall include’ - which you would think would be innocuous - ends up being the exact reason that it was plausible for it to violate the ESA,” adds Atyeo.
