Ontario Chamber of Commerce allowed to weigh in on termination clause appeal

Employers may finally be getting solid guidance around termination clause language in employment contracts, with the Ontario Court of Appeal’s recent decision to let the Ontario Chamber of Commerce (OCC) intervene in the Baker v. Van Dolder’s Home Team Inc. case. 

The court’s allowance of the OCC to weigh in on the decision, which scrutinizes the common “at any time” termination language in employment contracts, points to just how high the stakes have become for employers across Canada when it comes to drafting employment contracts. 

The OCC and the Canadian Association of Counsel to Employers (CACE) both applied to appear as “friends of the court” for the appeal; as the court explains in its decision: “Although the appeal arises from a private dispute, the issues that are raised transcend the parties’ interests and involve questions of public importance.” 

Evolution of termination language in employment contracts 

Dan Bokenfohr, employment and labour lawyer at McLennan Ross, explains that although termination clauses that allow employers to end employment “at any time” have been standard in contracts for years, more recent decisions have created a legally fraught landscape for employers. 

“The decision under appeal says that that sort of language is impermissible, it offends Employment Standards legislation, and as such, it makes the entire clause null and void,” he says. 

“So you've accomplished nothing with your termination clause. You're back to the starting principles.” 

The shift in interpretation is rooted in the courts’ approach to employment contracts, Bokenfohr explains, which differ from other types of agreements.

“The biggest thing they're worried about is that employers tend to have better bargaining power. Employees tend to be less sophisticated and … have less bargaining power when they're entering into these things.” 

This shift has left many employers vulnerable to legal risk and potentially large reasonable notice awards, not because of ill intent but because of lack of knowledge, says Bokenfohr. 

“Employers think they've gotten protection. They're walking around thinking they've managed these expenses and these risks arising from a termination and they find out after the fact that they don't have a good clause in place,” he says. 

“It needs to become more straightforward for employers, instead of it being this mystery, magic formula that they're always chasing.” 

Employee protection and the shifting legal landscape 

Courts have emphasized that employment standards legislation sets only the minimum requirements, not the maximum, Bokenfohr explains, meaning employees may be entitled to much more under common law, and employers who wish to limit entitlements have to do so in “crystal clear language so that the employee understands.” 

Now, he adds, ambiguity in contract language is interpreted in favour of employees, to the extent that this court agrees that the decision will have far-reaching impact. 

“It just has been spiraling from there to the point where there's no meaning left in these clauses anymore,” Bokenfohr says, adding that in his view, the interpretation of the term “at any time” has become too literal, setting an impossible bar for employers. 

“Normally, when someone says, ‘I can terminate you at any time without cause’, you're not trying to say you're going to do it in an unlawful fashion,” he says.  

“But the courts have said, ‘Well, this clause doesn't meet employment standards because we're going to interpret it as meaning you can terminate in violation of statutorily protected leaves, like [maternity] leave or disability leave.’ No ordinary person looking at that clause would say that's what the employer is wanting to do.” 

Challenge for employers and small businesses 

The contract at the heart of the appeal contained a “without cause” termination provision that allowed the employer to end employment “at any time.” The motion judge found this language unenforceable.  

It also found the contract’s “with cause” provision unenforceable, because it “did not explain the difference between the less stringent ‘just cause’ standard and the higher ‘wilful misconduct’ standard that would result in an employee losing their entitlements under the ESA.” 

The growing complexity of contract law has left many employers, especially small businesses, struggling to keep up – Bokenfohr points out the disparity between large and small employers, with many Canadian businesses without the resources necessary to draft complex and legally airtight contracts required by today’s courts. 

“You have these clauses that are lengthy and complicated that in many cases the courts say mean nothing, because they're not on side of all these technical rules,” he explains. 

“Someone needs to be arguing to say, ‘Look, this assumption that there's this wide gap in bargaining power isn't always the case. You've got lots of small businesses out there that don't have the resources to have a lawyer at their disposal, writing these things and watching for updates in the law and adjusting them nonstop. This shouldn't be a game of cat and mouse at the end of the day.” 

Ontario Chamber of Commerce to submit factum 

The court noted that the OCC’s intervention will add clarity to the decision which will raise “broader implications” than only the parties directly involved. The appeal also addresses public policy issues and the interpretation of the ESA.  

The court granted the OCC leave to submit a 15-page-maximum document stating its interest and recommendations in the case; CASE’s application was rejected mostly due to issues of fairness and the OCCs particular expertise.  

“It needs to be something that's fair to both parties, the process and how you interpret these clauses,” Bokenfohr says. 

“But there needs to be some common sense brought back to it, and there needs to be an attempt to bring back more of an effort to figure out what the parties actually meant when they wrote the words that they did.” 

Recommendations for employment contract termination clauses 

In the meantime, as this appeal makes its way through the legal system, Bokenfohr strongly urges employers and HR take a close look at their current employment contracts to see if that “at any time” – or any other ambiguous phrasing – exists.  

“I think there'll be an interest in trying to get this issue as high up in the courts as we can, so that there's at least clarity on it, because employers need to know whether they have a good contract or not, and whether they need to change it,” he says. 

“There's a lot of work that goes into changing it with existing employees, so it creates a bit of a mess. So right now, employers should be looking at their contracts, and does it contain this type of language? And if it does, you’ve got to think, is it worth the risk of keeping it in there?”