Reminder for HR: Even an otherwise enforceable clause can be rendered useless
Employers in Ontario are used to having the courts scrutinize the termination clauses in their employment agreements. Employment lawyers spend a significant amount of time drafting termination provisions to address issues identified by the courts to try and provide their clients with protection and certainty in this regard.
However, as the decision in Henderson v Slavkin makes clear, the terms set out in the rest of the employment agreement can be just as important to get right.
In this case, the defendants operated two oral surgery dental offices in Ontario. In 2015, as both doctors were beginning to make plans for retirement, they asked all employees to sign new employment agreements in exchange for a $500.00 signing bonus. The agreements contained the following termination clause:
“Your employment may be terminated without cause for any reason upon the provision of notice equal to the minimum notice or pay in lieu of notice and any other benefits required to be paid under the terms of the Employment Standards Act, if any. By signing below, you agree that upon receipt of your entitlement under the Employment Standards Act, no further amount shall be due and payable to you, whether under the Employment Standards Act, any other statute, or common law.”
The agreements also contained a conflict of interest provision as well as a confidential information provision, both of which indicated that if the employees were to breach the clause in question, their employment would be terminated without notice or compensation in lieu thereof, for cause.
The plaintiff, who worked as a receptionist and had been with the practice since the second office was opened in April 1990, ultimately signed the new employment agreement.
In November 2019, the defendants advised their employees that the practice would be shutting down and all staffs' employment would terminate as of April 30, 2020. Following the end of her working notice period, the plaintiff sued for wrongful dismissal. She argued that the 2015 employment agreement was unenforceable, as it was unconscionable and contained provisions that were contrary to legislation, including the Employment Standards Act, 2000 (ESA).
Analysis of decision
In determining whether the employee's entitlements were properly governed by the 2015 agreement or the common law, the court reviewed three clauses: the termination provision, the conflict of interest provision, and the confidential information provision.
The termination clause: The plaintiff argued that the without cause termination provision was not sufficiently clear, as it did not expressly provide for her entitlement to severance pay or benefit continuance. The court disagreed, finding that the clause could not, and should not, be interpreted as being contrary to or inconsistent with the provisions of the ESA. It was clear, from the drafting of the clause, that the defendants had intended to comply with the requirements of the ESA. As a result, the court would have found that the termination clause, on its own, was enforceable.
The conflict of interest clause: The plaintiff argued that conduct falling short of wilful misconduct could not constitute dismissal for cause and, as a result, the conflict of interest clause violated the minimum requirements of the ESA by prescribing that any breach of the provision would result in termination for just cause. The defendants argued that the actions identified in the conflict of interest clause would, in all circumstances, constitute wilful misconduct or wilful neglect of duty.
The court agreed with the plaintiff, noting that the wording of the provision was overly broad and ambiguous. In addition, some words had been accidentally left out of the draft, making it impossible for an employee to know, upon entering the contract, what conduct could result in termination for cause. As a result, the court found that the clause was invalid and had to be set aside.
The confidential information clause: The plaintiff similarly argued that the confidential information clause was invalid, as it did not specify that any misconduct must be wilful and not trivial to support a termination without notice. The court agreed, noting that "one can conceive of a situation where confidential information may have been inadvertently disclosed in a situation where it is not wilful and/or where it is a trivial breach". As the provision did not contemplate this, it was also invalid.
Due to the fact that both the conflict of interest and confidential information provisions were set aside as they were not in compliance with the ESA, the court held that the entire employment agreement had been invalidated and the plaintiff was therefore entitled to reasonable notice at common law. The parties agreed that 18 months was the appropriate notice period, which the court discounted by three months due to the plaintiff's failure to take reasonable steps to mitigate her damages.
The Henderson decision is an important reminder for employers that even an otherwise enforceable termination clause can be rendered useless if some other part of the employment contract offends the requirements of the ESA. Employers must scrutinize their agreements carefully and avoid any blanket statements with respect to an employee's entitlements on dismissal, even in situations where breach of a clause may seem likely to be particularly egregious.
This case highlights the importance of working with an employment lawyer to draft crucial HR documents, including employment agreements, in order to ensure that employers are effectively minimizing their liability.