Bad contract wording gives long-time employee big notice award

Termination clause limited notice, but didn’t guarantee benefits during notice period; 21 months common law notice instead

An Ontario company must pay a dismissed employee damages equal to 21 months’ pay because the termination clause in its employment contract potentially deprived the employee of benefits during the reasonable notice period, the Ontario Superior Court of Justice has ruled.

St. Joseph Communications is a marketing and advertising company based in Ontario. In 1994, it hired Kelly Cormier as a freelance wardrobe stylist with an oral employment contract. St. Joseph considered Cormier to be an independent contractor at the time, but Cormier believed she was an employee of the company.

Cormier’s duties as a freelance wardrobe stylist involved selecting clothing and accessories for models in St. Joseph’s advertisements and promotions. Once she selected the items, the company bought them and hired the models, while also supplying an iron to Cormier to press the garments. St. Joseph issued the assignments to Cormier on a day-to-day basis and paid her either by the hour or for each project, depending on the particular project.

St. Joseph paid Cormier based on weekly invoices she submitted and didn’t make any statutory deductions as it considered her an independent contractor. By 1996, Cormier worked full-time hours — 37 to 40 hours per week — during most of the year, with the exception of May and November, which were usually slow months in the advertising industry. During the slow months, she sometimes worked for other companies, but worked solely for St. Joseph for the rest of the year. From 2004 to 2006, she worked exclusively for St. Joseph the entire year.

In June 2004, St. Joseph hired Cormier as a full-time employee in the position of wardrobe stylist with a written employment contract. She received an annual salary and the company made all the deductions and payments required for employee compensation.

In January 2008, the company promoted Cormier to the position of fashion studio producer, which came with a new employment contract and salary increase. The employment contract included a termination clause that stated St. Joseph could terminate her employment without cause for any reason by providing the greater of two weeks’ notice or pay in lieu including benefits, or the minimum legislative requirements for notice or pay in lieu of plus twice the amount of severance pay required by employment standards legislation and benefits continuation for the notice period.

New position, new employment contract

Cormier received another promotion to the position of fashion studio manager in September 2012. This promotion also came with a new employment contract that stated the day she was hired as a full-time employee June 2004 would be considered her start date for calculation of years of service and vacation entitlement. The new contract also included a termination clause that provided for termination without cause with the minimum notice or pay in lieu plus severance pay required by the Ontario Employment Standards Act, 2000. In addition, the clause allowed for the continuance of company benefits during the notice period “subject to the consent of the company’s insurers.” The clause stated she would have “no other entitlement” outside of the legislative minimums indicated and the combination of notice or pay in lieu of would be at the company’s discretion.

In addition to the new agreement, Cormier had to sign a non-solicitation clause that prohibited business with any St. Joseph clients with whom she had direct contact in the past year of her employment for 12 months after termination. A non-competition clause also prohibited her from engaging in a business in Ontario that competes with St. Joseph for six months after her termination.

Four years later, in June 2016, St. Joseph informed Cormier that due to a downturn in business, the company was introducing two weeks of additional vacation that would be unpaid in order to save costs. Cormier wasn’t happy about this but took the two additional weeks of vacation without pay. Accordingly, St. Joseph deducted $125.54 from each of her biweekly paycheques to cover the unpaid time off.

This practice continued for one year until June 1, 2017, when Cormier and many other employees were terminated without cause effective Oct. 27 — five months’ working notice. St. Joseph explained that the cutbacks were due to the closing of Sears, one of St. Joseph’s major clients.

Five weeks later, on July 6, St. Joseph informed Cormier it was waiving the balance of her working notice and her termination would be effective the next day with a severance package offer. Cormier refused the severance package, so St. Joseph provided her with three weeks’ salary and 26 weeks’ salary severance pay — double the employment standards requirement for severance pay — with benefits coverage for another three weeks.

Cormier, who was 52 years old at the time of her termination, was unsuccessful in finding a new job and felt she was hindered by the non-solicitation and non-competition agreements. She sued for wrongful dismissal, claiming damages for 24 months’ reasonable notice — for service time dating back to 1994 —  loss of benefits, reimbursement of the unpaid vacation program, and cellphone allowance during the notice period.

The court found that while Cormier had some independence when she first was hired as a contractor by St. Joseph, by 1996 she was working essentially exclusively for the company and “it was her boss.” This was characteristic of a dependent contractor relationship, as evidenced by the fact that when St. Joseph officially hired her as an employee in 2004, not much changed in terms of control or exclusivity. As a result, Cormier had 23 years of a workplace relationship with St. Joseph by 2017 and her common law notice entitlement should reflect this, said the court.

In addition, the court noted that Cormier made efforts to find new employment, but these efforts were hindered by the non-competition and non-solicitation clauses with St. Joseph. There was no failure to mitigate that should detract from Cormier’s damage entitlement, said the court.

Termination clause unenforceable

The court also found that the termination clause in Cormier’s employment contract wasn’t enforceable, as while it provided for notice equal to the employment standards minimums, it said benefits would only be continued during the notice period if the company’s insurers consented. This potentially denied certain benefits that were received before termination during the notice period, which was contrary to employment standards legislation, said the court.

“With respect to the employee benefits, the termination clause therefore provides Ms. Cormier with a lesser right than the rights set out in the Employment Standards Act, 2000 and therefore, the entire termination clause is void,” the court said.

In addition, the court noted that the Ontario Employment Standards Act, 2000, prohibits employers from making deductions from wages without written authorization by the employee or a court order. As a result, the deductions from Cormier’s pay made as part of the unpaid vacation program were illegal and Cormier was entitled to reimbursement for them.

The court determined Cormier was entitled to 21 months’ reasonable notice. Damages for salary, benefits, unpaid vacation deductions, and cellphone allowance for this period minus amounts already paid left her total damages at $112,863.75.

For more information see:

• Cormier v. 1772887 Ontario Limited c.o.b. as St. Joseph Communications, 2019 CarswellOnt 852 (Ont. S.C.J.).

Latest stories