Ontario Court of Appeal provides further guidance for employers
Last year, the Ontario Court of Appeal released its landmark decision in Waksdale v Swegon North America Inc., where the court held that if an employment agreement contains a termination-with-cause provision that violates the Employment Standards Act, 2000, (ESA) the termination-without-cause provision will be rendered unenforceable as well.
This decision left many employers across Canada scrambling to update their termination clauses to ensure enforceability.
However, with little practical guidance from the court about how termination-with-cause provisions should be properly drafted (notably, the content of the with-cause provision in question was not excerpted at all within the court’s decision), there was still uncertainty. A new decision from the Ontario Superior Court of Justice, Perretta v. Rand A Technology Corporation, provides some clarity on this issue.
Specifically, we now know that the following with-cause-termination provision is unenforceable:
“Termination With Cause – We may terminate your employment for just cause at any time without notice, pay in lieu of notice, severance pay, or other liability, subject to the ESA. For the purposes of this Agreement, “just cause” means just cause as that term is understood under the common law and includes, but is not limited to: [list of Eleven Categories of Just Cause].”
In Perretta, Candice Perretta had been an employee of Rand A Technology for five-and-a-half years when she was dismissed, without cause, in March of 2020. She was 49 years old at the time of dismissal and occupied a sales position. The terms of her employment were governed by an employment agreement which provided that her employer could terminate her employment at any time, without cause, by providing her with two weeks of notice or pay in lieu of notice plus the minimum notice or pay in lieu of notice, benefits and severance pay required by the ESA. The agreement also provided that Perretta’s employment could be terminated with cause, as set out above.
At the time of dismissal, Rand A Technology had refused to provide Perretta with the additional two weeks of notice/pay in lieu of notice contemplated by the agreement unless she executed a Full and Final Release. Ultimately, Perretta admitted this was a mistake, and provided her employer with her minimum entitlements under the ESA, as well as the additional two weeks.
Perretta brought a motion for summary judgment, claiming almost $27,000 in damages for wrongful dismissal. She alleged that Rand A Technology had repudiated the agreement, and therefore she was entitled to reasonable notice at common law. In the alternative, she submitted that the termination provisions in the agreement were unenforceable, as they contravened the requirements of the ESA.
Enforceability of termination clause
The court found that the employer had repudiated the agreement by insisting, repeatedly, that Perretta was only entitled to the additional two weeks provided for in the agreement if she signed a Full and Final Release. It was therefore not entitled to rely on the termination clause set out in the agreement to its benefit, and she was entitled to reasonable notice at common law.
As a result of the court’s findings on this issue, it was not necessary to analyze Perretta’s alternative argument regarding the enforceability of the termination clause. Nevertheless, the court noted that it “would have found that the termination provisions were unenforceable, had it been necessary to do so.”
The reasoning behind the court’s decision follows the analysis in Waksdale. Simply put, in order to exempt an employee from their entitlement to notice/termination pay or severance pay under the act, the employee must be guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
In Perretta, the termination-with-cause provision is clear that Perretta will have no entitlement to notice or pay in lieu of notice in circumstances where there is just cause to terminate her employment. However, “just cause” is specifically defined to include conduct which arguably could fall below the standard of wilful misconduct established by the ESA. Pursuant to Waksdale, Perretta argued that this potential breach rendered the entire clause unenforceable.
Rand A Technology argued that its termination provision was different from the one the employer attempted to rely on in Waksdale, because the termination-with-cause provision in the agreement states that it is “subject to the ESA”. The agreement also contained a saving provision which provided that the employee’s entitlements under the ESA would govern in all circumstances. However, the court found that this was not sufficient to “fix” the offending clause.
The ambiguity created by the clause purporting to be subject to the ESA, while also defining just cause in a manner that resulted in a clear breach of the ESA, had to be resolved in favour of Perretta.
She was awarded damages equal to a six-month notice period which, after deducting amounts already paid to her by the employer, was equal to $16,807.
Perretta makes it clear that employers cannot expect saving language, whether attached to the termination clause itself or set out elsewhere in the agreement, to fix a clearly unlawful termination clause. A termination-with-cause provision that does not acknowledge that an employee will have entitlements under the ESA in all but very limited circumstances is doomed to fail. As a result, it is crucial that employers take the time to draft their termination provisions correctly.
In addition, it is more important than ever that employees who have been dismissed seek legal advice before accepting a separation package, as their entitlements may be significantly greater than their employer may be suggesting.