Clarity of termination clause challenged on multiple fronts in recent decision – did they all survive Ontario court's scrutiny?
Another Ontario termination clause has been ruled unenforceable because it breaches employment standards legislation – not from language that allowed the employer to fire the worker with cause “at any time,” but because it left the door open for other breaches of employment standards legislation.
The 45-year-old worker was hired in January 2022 by Strides Toronto Support Services, a non-for-profit agency in Toronto that provides programs and services to children, youth, and their families. She was hired to be the senior manager of the provincial walk-in program, which involved developing and managing a virtual walk-in clinic with navigators and later clinicians. By mid-2022, she was supervising 10 people.
The worker was subject to an employment contract with a termination clause that limited her entitlements for a without-cause termination of employment to the minimums under the Ontario Employment Standards Act, 2000 (ESA) plus one week for each year of service completed, a pro-rated amount for each month in an incomplete year, and benefits for the statutory notice period.
The termination clause also had a provision stating that Strides could terminate her employment “at any time, without notice or pay in lieu thereof or severance pay, for willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the organization.” In addition, the provision said that if the worker was terminated for common law just cause that didn’t rise to the ESA definition of willful misconduct, she would “receive those amounts set out in (a) above but you will not receive the amounts in (b) above. There were no paragraphs labelled as (a) and (b), but there were two bullet points in “without cause” provision right above – the first referring to the ESA minimum entitlements and the second discussing the additional one week’s notice for each year of service.
Strides terminated the worker without cause on May 15, 2023, after 16 months of employment with the organization. Strides gave her a lump-sum payment representing approximately 3.5 weeks of regular base pay, along with outstanding wages and accrued vacation pay. Her benefits coverage continued for another two weeks, until May 29, 2023.
Worker challenged termination clause
The worker launched a wrongful dismissal action and applied for summary judgment, arguing that the “with cause” termination provision was unenforceable – making the entire termination clause unenforceable - so she was entitled to eight months’ pay in lieu of notice. She submitted that: the use of the phrase “at any time” breached the ESA as there were times when an employer couldn’t legally terminate employment; the provision was ambiguous because it referred to (a) and (b) paragraphs that didn’t exist in the “without cause” provision; and it only referred to “the amounts” in the “without cause” provision, which could be seen as only including her pay in lieu of notice and excluding the continuation of benefits. Since Strides chose to change the wording to “amounts” in the “with cause” provision instead of repeating the entitlements of the “without cause” provision, it intentionally intended to have this potential breach, said the worker.
The court granted the summary judgment application, as Strides conceded that summary judgement would be appropriate if the termination clause was enforceable or if reasonable notice was no more than four months.
The court noted that the ESA is intended to protect the interests of employees, so courts had to interpret it in a way that “encourages employers to comply with the minimum requirements.” As a result, if there are multiple reasonable interpretations, the one giving a greater benefit to the employee will be preferred, the court said.
The court found that the phrase “at any time” didn’t, in this context, conflict with the ESA. In its decision Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the court determined that words allowing the employer to terminate “at any time” at the employer’s “sole discretion” breached the ESA due to certain circumstances when an employee can’t be dismissed (the decision was upheld by the Ontario Court of Appeal). However, in this case the phrase “at any time” on its own, without “sole discretion,” didn’t breach the ESA.
“While there was an argument that ‘at any time’ should render the termination clause unenforceable, the court provided reassurance to employers that ‘at any time’ language on its own will not automatically breach the ESA and therefore will not automatically render a termination clause unenforceable,” says Nhi Huynh, an employment lawyer at Williams HR Law in the Greater Toronto Area.
Ambiguous terms with multiple reasonable interpretations
The court also found that not labelling the bulleted paragraphs (a) and (b), while lacking clarity, didn’t render the provision ambiguous, as it was clear that the “with cause” provision was referencing those paragraphs, which were located right above it. However, the court agreed with the worker that the reference to “those amounts” could reasonably be interpreted to exclude the continuation of benefits, which would bring the termination provision into conflict with the ESA. While “those amounts” could mean both pay in lieu of notice and benefits, a reasonable person would consider benefits as something that isn’t an amount provided to the employee, said the court in finding the reference ambiguous.
“The word ‘amounts’ could be interpreted as not including benefits continuation because the employer's not directly paying that to the employee,” says Huynh. “And there could be a reasonable interpretation that the word is exclusive of benefits, and that particular ambiguity – as with any ambiguity - was read against the employer as the drafter of the agreement and in favour of the employee.”
It's an example of how much words matter in employment agreements, she says.
“If you're just trying to re-state entitlements, you have to be very careful about the words you use, making sure that all of the entitlements apply - even repeating them would have been helpful for this employer,” says Huynh. “But again, because they used the word ‘amounts,’ which had two different reasonable interpretations, that created a problem - if you mean to give an employee all the statutory entitlements, it would have to be expressly clear with no other reasonable interpretation.”
Since it had been established that if any part of a termination clause breaches the ESA the entire clause is void, the court determined that the termination provisions were void and the worker was entitled to common law reasonable notice.
Four months’ reasonable notice
The court noted that the worker, aged 43 at the time of termination, held a supervisory role and secured similar employment 10 months after her termination. It found that a reasonable notice period was four months.
“Even for employees with less than two years of service or sometimes even less than one year, the range of reasonable notice is going to be bigger,” says Huynh. “Even with short-term employees, it could potentially go up to eight or nine months, depending on the facts – a settlement before a costly trial, if it's reasonable to do so, might make more sense when you're balancing what it will cost at the end of the day.”
Strides was ordered to pay the worker $28,467.98, representing four months’ pay and benefits in lieu of notice minus the termination pay already paid to her.
The law on termination clauses is constantly evolving, says Huynh.
“Employment contracts really should be considered as living documents - it's not a one-and-done deal,” she says. “Think of them as something you're doing for risk mitigation and something that employers regularly work on.”
“The case law isn’t entirely consistent when it comes to termination clauses and we're still waiting for certain cases to be appealed,” adds Huynh. “Right now, Dufault is the one that's reached the level of the Court of Appeal, but employers should just make sure that they're monitoring appeals for these cases.”
