Wrongful dismissal case highlights uncertainty with termination clauses
“It's very, very frustrating and disconcerting for employers because the law is evolving so constantly with regards to termination clauses.”
So says Carita Wong, a partner at Israel Foulon Wong in Toronto, after a recent Superior Court of Justice case in Ontario found an employee was wrongfully dismissed because her employment contract was invalid due to two faulty clauses — even though they were not termination-related.
Dental offices close down
Dr. David Slavkin and Dr. Melvyn Kellner operated dental offices in the Greater Toronto Area and Bolton, Ont. Rose Henderson was a receptionist in the Bolton office, having started her job there in 1990. She made $46,000 per year, with 20 days’ paid vacation.
In 2015, the two surgeons began to make plans for their future retirement, and they decided to offer new employment contracts so employees would know what to expect once they left.
On May 26, 2015, staff were offered $500 to sign the agreement or accept termination with working notice of two years. Henderson signed her agreement and in March 2020, all staff were told their employment would terminate as both Slavkin and Kellner would be retired.
Henderson’s job ended on April 30, 2020.
Wrongful termination
In pursuing a claim of wrongful termination, Henderson took issue with three clauses in the employment agreement with the dental practice, which she claimed were illegal, concerning termination, conflict of interest, and confidentiality.
She felt the contract was unconscionable and some provisions violated the Employment Standards Act (ESA), the Occupational Health and Safety Act and the Human Rights Code.
Justice Carole Brown decided there was no inconsistency between the termination clause and the ESA provisions that would give rise to any ambiguity in Henderson’s right to continue to pursue benefits.
“I cannot conclude that the clause could or should be interpreted as contrary to or inconsistent with the provisions of the ESA.”
Read more: Termination clauses: Getting it right
However, the court agreed with Henderson when it came to the two other clauses.
Brown concluded that the wording in the provisions around wilful misconduct and wilful neglect of duty were “broad, unspecific and ambiguous,” so that clause was invalid.
The same was true for the confidentiality clause, she said:
“It is not clear in what circumstances the disclosure of confidential information may occur without immediate termination for cause without notice. 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 a result, Henderson was wrongfully dismissed because the two clauses violated the ESA and therefore invalidated the employment contract. The dentistry and Henderson agreed to an applicable notice period of 18 months, with three months deducted for mitigation, said Brown in her Aug. 10 decision Henderson v. Slavkin et al.
Beyond Waksdale
The Henderson case is another example of the court pointing out that termination clauses that are in any way offside of the ESA are most likely to be found unenforceable, says Barbara Green, a partner at Robins Appleby in Toronto.
“All clauses in employment contracts have to be really clear,” she says. “Any ambiguous language in a contract is bad for the employer because employment contracts are read favourably, given the power imbalance… for the employee. And if there's any ambiguity, that's probably going to be resolved in favour of the employee.”
“Chances are a court is not going to find that clause to be enforceable — and that’s in general, not just specifically with respect to just cause.”
With creative arguments, there's now this window to attack termination clauses that, if you read on their face, actually seem pretty clear, says Green.
“The language speaks for itself, yet that's not enough for the court to uphold that bargain. The court wants strict compliance with the employment standards minimum.”
Read more: The employer strikes back
Henderson is one of the first cases where the analysis in Waksdale has been applied to language in clauses that aren’t termination clauses, says Wong. In the 2020 Waksdale v. Swegon North America, the Ontario Court of Appeal found the illegality of one clause negatively affects the entire agreement.
“The termination clause itself in the [Henderson] case was found by the court to be enforceable… except for the invalidity of the conflict of interest and confidentiality clauses, which it determined was sufficient to now invalidate the termination clause. So that’s what now pushes the envelope a little further than Waksdale,” she says.
However, the Henderson case was also interesting because the termination clause has potential arguments that lawyers have been making to invalidate termination clauses, says Wong: The clause itself didn't provide for the payment of severance pay or the continuation of benefits, it only provided for the payment of benefits.
“That had the potential to violate the Employment Standards Act. And there is an earlier case which was mentioned, Rutledge [v. Canaan Construction Inc.], that many lawyers rely on in arguing deficiencies in termination clauses that held that if a termination clause has the potential to be void in the future, then it will be unenforceable,” she says.
Instead, the Superior Court of Justice in Henderson went back to earlier cases that were more “employer friendly” in their interpretation of contractual termination clauses, “and looked to language that said the court shouldn't strain to create ambiguity where none exists and shouldn't disaggregate words in the search of ambiguity when interpreting a termination clause; and on that basis, it found the termination clause to be enforceable,” says Wong.
That could be beneficial in the future for employers looking to argue the enforceability of just the termination clauses, she says.
This case is also positive in showing how to put in place a contract during employment, with the dentistry offering $500 for the new agreement or two years’ working notice, says Wong.
“It does speak to the ability of employers, even mid-employment, to be able to introduce employment agreements, effectively, if you follow the correct process.”
Takeaways for HR
It’s really important for employers and HR to be reviewing old pro forma employment contracts, says Green.
“This is where I find employers are running into trouble, in that they have these old formats that nobody's looked at in years. And they keep reusing them time and time again for employees, and they contain unenforceable termination clauses.”
A qualified employment lawyer should review the contracts regularly, she says “because the law is moving really quickly in this area of termination clauses.”
It’s also advisable to consider what to do about employees who are under existing contracts with unenforceable termination clauses — and there are several options, says Green.
“It may be preferable to try to amend an outdated contract or to try to have an employee sign a new contract — that's going to be the best cost savings, if it's possible to do,” she says.
“There may be too much risk, from a practical basis, in that you're going to get valuable employees walking out the door… [and] there may also be employee rights to claim constructive dismissal.”
With new legal developments, some employers have gone back six months or so and revised language, just to make sure that they’re using the best practice possible, says Wong.
“We've now gotten to the stage where we are recommending to clients that they have their employment agreements reviewed and updated at least every year,” she says.
“The problem with that, of course, is that it leaves a lot of uncertainty for employers. And the purpose of having an employment contract for employers is to have certainty. So it's very difficult in that respect.”
