Decision following Dufault case 'could be an expansion of the employee's rights,' says lawyer
The Ontario Superior Court of Justice has ruled that the termination provisions in an employment contract were unenforceable, leading to the dismissal of the employer’s motion for summary judgment in a wrongful dismissal case.
The worker was employed with Van Dolder’s Home Team (VDHT), a custom home exterior company operating in Collingwood, Ont., and Owen Sound, Ont. His employment contract included a termination clause with provisions for both without-cause and with-cause terminations.
The without-cause provision stipulated that VDHT could terminate the worker’s employment “at any time, without just cause,” if it provided the minimum notice or payment in lieu of notice, plus any applicable severance pay, required by the Ontario Employment Standards Act (ESA).
The with-cause provision purported to allow VDHT to terminate the worker’s employment “at any time for just cause” without notice or compensation “except any minimum compensation or entitlements prescribed” by the ESA. It listed five examples of just cause for termination, plus “any conduct which would constitute just cause under the common law or statute.”
VDHT terminated the worker’s employment without cause on May 24, 2023. The worker sued for wrongful dismissal, challenging the enforceability of the contract’s termination provisions. VDHT applied for summary judgment, and the court was asked to determine whether the with-cause provision was valid, with the enforceability of the without-cause provision also coming into question during the proceedings.
Termination provisions
The worker argued that the without-cause termination provision was unenforceable because it granted VDHT the ability to terminate employment “at any time.” He referred to Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, which determined that “the right of the employer to dismiss is not absolute” and such language contravened the ESA, as the act prohibits terminations under certain conditions such as reprisals or the conclusion of an employee’s leave.
The court agreed with the worker, finding that the without-cause termination provision was unenforceable in accordance with the court in Dufault establishing that the ESA doesn’t permit an employer to terminate “at any time.” In addition, a provision that breaches the ESA “is not saved by general language stating that the employer will comply with the ESA,” said the court.
The court here expanded on Dufault, as that earlier decision took issue with two phrases in a without-cause provision - the “sole discretion” of the employer and “at any time,” according to Jordan Bailey, an employment lawyer at Zubas Flett Liberatore LLP in Toronto.
“The change here is that the court found that ‘sole discretion’ wasn't necessary to essentially make it unenforceable - just simply having the language ‘at any time’ could be interpreted as trying to contract out of the ESA,” he says. “This could be an expansion of the employee’s rights in this situation - even though it could be read in a plain reading as complying with the ESA, just the fact that it could be interpreted in another way of not complying means that it's unenforceable.”
The court also looked at the with-cause termination provision “for the sake of completeness,” noting that it defined just cause with a standard lower than the ESA’s “wilful misconduct” threshold that disentitles an employee to statutory termination and severance pay.
Just cause definition
Although the with-cause provision included a reference to minimum ESA entitlements, the court recognized that employees may not be familiar with their legal entitlements under the ESA. This is why employment contracts are interpreted differently from commercial contracts, where both parties would be more likely to understand the differences between contractual, common law, and statutory definitions of just cause, the court said, adding that many employees assume their contractual just cause definitions align with ESA standards, which is not necessarily the case.
The court found that the with-cause termination provision was also unenforceable due to the lack of detail or explanation of the ESA’s wilful misconduct standard. Without such an explanation, “many employees would assume that they had no entitlement if they breached the contractual [just cause] standards,” said the court.
“The court really emphasized that there needs to be a clear distinction between wilful misconduct and just cause,” says Bailey. “So if a just-cause provision is written in such a way that employees could believe that they don't have the protections of the ESA for a just-cause termination, then that’s going to make it unenforceable.”
With both termination provisions deemed unenforceable, the court dismissed the employer’s motion for summary judgment and set a hearing to determine wrongful dismissal damages, as previously agreed by the parties.
The court acknowledged that VDHT had likely intended to comply with the ESA but noted that legal precedent sets a high standard for clear language in termination provisions that aim to remove an employee’s entitlement to common law notice.
Contractual language
The trend in case law over the past view years is sliding heavily towards contractual language that ensures employees understand their entitlements, according to Bailey.
“When the employee is reading the contract, if it’s not clearly spelled out, any kind of improper language that could lead them to think something that’s not legally true is just not going to be allowed,” he says. “Courts are highlighting that the employee being unaware at the time the contract [is signed] is a big factor into a decision against the employer - and that power imbalance goes to the heart of a lot of these decisions, not just around termination provisions, but when looking at employment contracts as a whole.”
With the way courts are scrutinizing termination clauses, it’s essential for employers to review both current employment agreements that are in place and ones that they're drafting and plan to put in place with new hires, says Bailey.
“The recent jurisprudence of the last few years says that any employment agreements that are older than a couple of years will likely contain some of this [“at any time”] language, so review and possibly update them to try and avoid this language that has been specifically highlighted as being a problem,” he says. “And also anything that is overly broad that doesn’t distinguish between wilful misconduct and common-law just cause.”
