Clause said employer could terminate 'at any time' but referred to statutory limits
An Ontario court has upheld a termination clause that clearly limited the employer’s obligations to statutory minimums if it dismissed a worker at any time and for any reason.
The worker, 47, began employment with Wayfair Canada on Jan. 23, 2023, as a senior product manager. He didn’t have any direct reports and he was two levels below a director.
The worker’s employment agreement included a termination clause stating that “the company may terminate your employment at any time for cause without notice, pay in lieu of notice, severance, benefits continuance or other compensation or damages of any kind…unless expressly required by the ESA [Employment Standards Act] in which case only the minimum statutory entitlements will be provided.”
There was also a clause later in the agreement stating that “after your probationary period concludes, in the absence of cause, the company may terminate your employment at any time and for any reason… by providing you with only the minimum statutory amount of written notice required by the ESA or by paying you the minimal amount of statutory termination pay in lieu of notice required by the ESA, or a combination of both, as well as paying statutory severance pay required by the ESA” and benefits continuance for the statutory minimum notice period, plus “all other outstanding entitlements, if any, owing under the ESA.”
The employment agreement also had a “joining bonus” provision that defined “cause” as “any willful misconduct, disobedience, or willful neglect of duty that is not trivial and has not been condoned by the company and that constitutes ‘cause’ under the ESA.”
Restricted stock unit entitlement
On three occasions, the worker accepted restricted stock units (RSUs) that were to vest on Feb. 1, 2024, in the amount of US$73,017. Wayfair’s incentive award plan stated that the granting of RSU vesting depended on the worker’s employment on the vesting date. It also stipulated that employment ended on the earliest of the effective date of his termination of service, the date he received written notice of termination, or the date he was no longer actively providing services, “subject to [the ESA] extending the date as part of the worker’s statutory notice period.”
Wayfair terminated the worker’s employment effective Oct. 17, nine months after he started. The company provided one week of base salary and benefits, as stipulated in his employment agreement for the ESA minimum entitlement.
The worker sued for wrongful dismissal, claiming five months’ common law reasonable notice. He argued that the “without cause” termination provision in his employment agreement was unenforceable, as it has been established by courts that the phrase “at any time and for any reason” rendered a termination clause unenforceable. The right of the employer to dismiss isn’t absolute, as there are situations where termination was prohibited by the ESA, the worker said, adding that it was also established that when one termination provision is unenforceable, all termination provisions are invalid.
Li did not secure alternative employment within the five-month period he claimed as reasonable common law notice.
Termination clause referred to legislation
The court noted that the definition of “cause” in the termination provision referenced the ESA and the provisions limited the employer’s obligations to those required by the ESA. The court distinguished the facts from those in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, finding that the employment agreement in this case referenced the ESA and provided for all types of wages – in Dufault there was no reference to the ESA when the agreement provided for dismissal at “any time.”
The court determined that the employment agreement sought to “limit the employer's obligation of that provided by the provisions of the ESA” and didn’t purport to contract out of the minimum standards. As a result, the termination clause was enforceable, leaving the worker entitled to only the ESA-mandated payment of one week of basic salary and benefits, which had already been paid.
The court considered, in the alternative, the appropriate notice period at common law if the agreement was unenforceable. After reviewing the Bardal factors the court found that a four-month notice period would have been appropriate, which would have extended beyond the Feb. 1, 2024, vesting date for the RSUs – leaving the worker entitled to the RSUs had the termination clause been unenforceable.
Having found that the termination provisions in the worker’s employment agreement were enforceable, the worker’s claim for additional common law damages was dismissed.
