'There really should be no doubt… surrounding compliance with the ESA': lawyer
“Termination clauses are among the more important clauses in a contract, but also ones that are probably the most closely scrutinized by courts, so regular review and updating of them is very important.”
So says employment lawyer and workplace investigator Ozlem Yucel of Turnpenney Milne in Toronto, after an Ontario court found that the termination provision in a worker’s contract was unenforceable due to ambiguity around the worker’s entitlement to benefits during the notice period.
The worker was an employee of Trader Corporation, a Toronto-based technology company specializing in classified automotive advertising.
The worker’s employment agreement contained a termination clause that included a paragraph allowing Trader Corporation to terminate the worker’s employment without cause “with such notice (or payment in lieu of notice), severance pay, if owing, accrued vacation pay and any other compensation or benefits that may be required to meet the requirements of the Employment Standards Act, 2000 [ESA].”
The second paragraph of the termination provision stated that in the event of a without-cause termination, the company would continue her group insurance benefit coverage during the statutory notice period “provided such coverage is available from the insurer.”
Termination clause purported to incorporate ESA
The provision concluded with the statement that “any future amendments to the Employment Standards Act, 2000 shall be deemed to be incorporated into this agreement” and the company had “no obligation to make any additional payments to you or to provide you with any additional notice upon termination other than those required to satisfy your entitlements under the Employment Standards Act, 2000.”
The worker was terminated without cause and she sued Trader Corporation for wrongful dismissal. She asserted that the termination clause was unenforceable and a non-compete provision warranted a higher notice period, claiming damages equal to four months’ pay in lieu of notice plus damages for inconvenience due to an inaccurate record of employment (ROE) that the company issued.
The court determined that the termination provision in the worker’s employment contract was vague and ambiguous, rendering it unenforceable. The termination provision contained multiple paragraphs that, when read together, created uncertainty regarding the worker's entitlements upon termination.
The court found that the phrase “any other compensation or benefits” in the first paragraph lacked clarity, particularly as the second paragraph specified only group insurance benefits, without reference to other possible entitlements such as pension or retirement savings benefits.
“When interpreting a contract, we're scrutinizing it for compliance with the ESA, because s. 5(1) of the ESA states that any contract that violates the ESA will be considered void,” says Yucel. “The relevant provision of the ESA when we're looking at this termination clause is s. 60(1), which requires employers to ‘continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period.’”
Employment contracts read as a whole
Contracts should be read as a whole, so the paragraphs had to be read together, adds Yucel.
“The second paragraph states the company will continue the group insurance benefit coverage for such period as the ESA shall require, and the court found it conveyed that the worker wasn’t entitled to any other types of compensation benefits on termination like pension, medical insurance, or retirement saving benefits, even though the worker was entitled to those benefits under the ESA,” she says. “So the court’s saying that the second paragraph was limiting the first and that creates an ambiguity.”
The court also found that the wording “provided such coverage is available from the insurer” created further ambiguity, as it suggested a limitation on benefits that would be contrary to the statutory entitlements under the ESA. The court referenced Waksdale v. Swegon North America Inc., 2020 ONCA 391, in finding that the termination provision didn’t meet the required standard of clarity under current case law.
“Waksdale says employees must understand their entitlements from the beginning of the employment relationship, and these two paragraphs are confusing to the employee surrounding what they get upon termination,” says Yucel. “So the clause is ambiguous and that renders the entire contract unenforceable.”
The court noted that an earlier court decision, Alarashi v. Big Brothers Big Sisters of Toronto, 2019 ONSC 4510, found that a similar statement on benefits was enforceable, but that was before the Waksdale decision.
Reasonable notice
The court determined that the worker was entitled to 10 weeks’ notice, finding that the argument for an extended notice period based on the non-compete clause wasn’t justified.
Regarding mitigation, the worker declined a job offer, citing a preference for remote or hybrid work to assist her mother with physiotherapy. However, the court found insufficient evidence that alternative arrangements were unavailable, and this didn’t impact the notice period awarded.
With two weeks already paid, Trader Corporation was ordered to pay the worker an additional eight weeks’ salary, employer pension contributions, and benefits, totalling $10,952.31. The company was also ordered to pay the worker $750 in general and punitive damages for the inconvenience from errors in the worker’s ROE, plus legal costs. The court acknowledged that the incorrect record caused difficulties in obtaining Employment Insurance but found the evidence on damages to be limited.
The court declined to award damages claimed by the worker for a bonus, parking, gym benefits, or health and wellness benefits, finding insufficient evidence that the bonus was an integral part of the worker’s compensation and the other benefits were reimbursements of expenses that the worker didn’t incur during the notice period.
“If there’s a conflict between the language in one paragraph or clause and another, a court could find an ambiguity that would undermine the enforceability of the entire contract,” says Yucel. “So it's very important, when reviewing contracts, to review them with that in mind - contracts will be read as a whole and paragraphs in conjunction with one another.”
No ambiguity on compliance
Employers should also closely scrutinize their contracts to ensure they comply with employment standards legislation to the letter, particularly given the back-and-forth on enforceability of termination clauses in recent years, according to Yucel.
“There really should be no doubt or ambiguity in the contract surrounding compliance with the ESA,” she says. “If there's any part that could provide less than what the ESA requires, that's going to be problematic from an enforceability perspective - and that will be the case even if there's language elsewhere in the contract stating that the ESA will be followed.”
See Ramotar v. Trader Corporation (Jan. 15, 2025), File # SC-23-00002856-000 (Ont. Sm. Cl. Ct.).
