'There was nothing in that termination provision that met the willful conduct threshold – being bad on purpose'
“If you have more than one [termination] provision, [courts] will read those provisions together in their plain wording to assess the validity or enforceability of the contract. Even if one is considered valid, if you have a termination provision that is invalid, then it will render all other termination provisions you have in the employment contract unenforceable.”
So says Paulette Haynes of Haynes Law Firm in Toronto, referring to the Ontario Court of Appeal’s determination that an Ontario worker’s termination provisions did not exempt her from common law notice entitlements because the plain wording of one provision violated legislative minimum requirements.
“That's a really important piece for employers to take into account – the courts are going to do a piecemeal approach to assessing the validity or enforceability of a contract,” says Haynes. “They're going to look at it in its totality.”
The Cannon Corporation is an engineering design, planning, and survey consultancy based in Buffalo, US. It has subsidiaries based in Toronto called CDAI and Cannon Design, and they all use the term and logo CannonDesign for their corporate group.
In February 2016, the worker was invited to join CannonDesign’s Toronto office as principal after meeting with the Cannon Corporation’s executive director. She signed two employment contracts – an offer letter asking her to join CannonDesign – “a legal entity of CDAI” – and an agreement with the Cannon Corporation. The offer letter stated that in the event of any conflict between it and the officer agreement, the offer letter would prevail.
The offer letter limited CannonDesign’s liability for without-cause termination to “the greater of the notice required in your officer’s agreement or the minimum amounts specified in the [Ontario Employment Standards Act (ESA)]” and stated that no notice would be given for just-cause termination. The officer agreement provided for one month’s notice for a just-cause dismissal.
Read more: Employment agreements must be interpreted as a whole and not on a piecemeal basis, the Ontario Court of Appeal said in making an employment contract unenforceable due to one illegal provision.
The worker had responsibility for the operation of the Canadian business and performed those duties for four years until April 30, 2020, when CannonDesign terminated her employment without cause. The termination letter indicated that she would receive four weeks’ termination pay in accordance with the officer agreement.
The worker sued Cannon Design, CDAI, and the Cannon Corporation for wrongful dismissal, claiming damages for reasonable notice.
After a motion for summary judgment, the motion judge found that the termination provision requiring the ESA minimum for a without-cause termination was valid because the worker had independent legal advice before she signed the offer letter, she had “experience and sophistication,” and it was the parties’ intention to comply with ESA minimum standards.
The judge also dismissed the action against Cannon Design and the Cannon Corporation, ruling that CDAI alone was the worker’s employer because it was the entity that offered her employment and paid her.
The worker appealed.
Worker’s sophistication, legal advice don’t affect enforceability
The Court of Appeal found that it was an error for the motion judge to consider the fact that the worker was sophisticated and received legal advice, along with the subjective intention of the parties, in determining the validity of the termination clause. It should only be the plain wording of the provision that determines its validity, the appeal court said.
“If there's evidence of the sophistication of the client and that the person was able to get independent legal advice, those are not factors to be considered as to whether a termination clause is enforceable or not,” says Haynes. “Why the motions judge took that into account? I don't know, but the Court of Appeal was quite clear that the governing factor that courts should be looking at to assess enforceability and the validity of a termination provision is the plain wording of the termination clause.”
On that note, the appeal court found that the plain wording of the termination clause didn’t comply with the ESA. The offer letter’s provision stated that there would be no notice or payment if there was just cause to terminate, but the ESA requires termination pay and notice for all employees, except those guilty of “wilful misconduct, disobedience or willful neglect of duty.” The termination clause did not limit its scope to just-cause terminations and was therefore void. It had been previously established that if a termination provision violates the ESA, all the termination provisions in the contract are invalid and unenforceable, the court said.
Read more: There are two standards for dismissal without notice in Ontario – common law just cause and statutory wilful misconduct, writes an employment lawyer.
Haynes points out that, while the motion judge interpreted the termination provision as indicating that the intention was to go with the statutory minimums, the Court of Appeal went beyond that to look more closely at the plain language of the provision.
“The Court of Appeal took the position that there was nothing in that termination provision that met that willful conduct threshold and the willful neglect of duty – it requires evidence that the employee was being ‘bad on purpose,’” says Haynes. “The offer letter said, essentially, that Cannon Design had the right to terminate without notice or payment in lieu of notice for conduct that constitutes just cause but doesn't limit it to willful misconduct.
“It is from that point that the Court of Appeal said, ‘This termination provision violates the ESA and renders it void, because [the ESA] says that employers can't contract out of the employment standards provision and any such contract is void,” she says.
The court also disagreed that only CDAI was the employer. The employment offer referred to CDAI as the employer, but The Cannon Corporation was the employer in the officer agreement and the offer letter was on CannonDesign letterhead and signed by the executive director of the Cannon Corporation.
The court also pointed to the fact that The Cannon Corporation administered the worker’s benefits and the worker’s bonus was based on CannonDesign’s performance as a whole. It wasn’t just CDAI who paid the worker, said the court.
The court found that the worker’s employment was controlled and directed by senior managers with the Cannon Corporation, which was highly integrated with CannonDesign and CDAI to the point where they should be considered common employers. In addition, the termination letter provided to the worker was on CannonDesign letterhead, referred to her position “as a principal of the Cannon Corporation,” and listed several positions with CDAI, Cannon Design, and the Cannon Corporation for which she had to submit formal resignation documents.
“[The defendant companies] denied that [the worker had any employment relationship, but then they ultimately took no issue with being treated as a common employer,” says Haynes. “And maybe it's because, when you look at the facts, there are so many things that interrelate all of them. The interplay between them suggests strongly that those corporate entities are the common employer.”
The Court of Appeal allowed the appeal and determined that the termination clause was null and void while the Cannon Corporation, Cannon Design, and CDAI were all common employers who were jointly and severally liable for damages. It remitted the matter to the Ontario Superior Court to determine the amount of damages owed to the worker.
Takeaways for HR
A key takeaway for employers is that they should occasionally review their employment contracts and, if necessary, make changes while providing proper consideration to employees when doing so, says Haynes.
“If you're doing new contracts, you have to be mindful of the current jurisprudence, but also with existing contracts which may have been valid at the time [of signing],” she says. “You may want to engage in periodic review and say, “OK, maybe we need to update and do the appropriate revisions with regard to the most current case law and any statutory changes that might apply.’”
In addition, it’s important for employers, particularly in Ontario, to distinguish the difference between the common law standard of just cause and the legislative standard of wilful conduct – the former alone doesn’t free them of liability for statutory termination and severance pay, says Haynes.
“You really have to be careful that if you're going to craft a clause that entitles an employee to termination notice or pay in lieu that it's also in keeping with the employment standard – in this case, it would have had to meet this wilful conduct threshold and [have] evidence that the employee was ‘being bad on purpose,’ she says. “I think it's interesting because that the provision which the offer letter had is not uncommon.
“These kinds of provisions may be considered unenforceable, especially if it's construed in the context of trying to contract out of ESA minimum standards.”
See Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451.
