West coast, best coast?

Exclusive to Canadian HR Reporter from Rudner Law.

You can tell I’m out of the loop when it comes to hockey because I still think of the Western Conference as being absolutely dominant.

To Stuart’s chagrin, the Eastern Conference’s Florida Panthers have unfortunately turned that around - in the NHL, the west coast may no longer be the best coast.

But what about in the employment law world? For employers, the west coast is the best coast when it comes to courts’ approach to the interpretation of employment agreements and termination clauses.

East versus West: Dufault

In Canadian law, as in hockey, Ontario gets a lot of attention. But there have been some interesting developments in jurisprudence on the opposite side of the country that indicate two differing approaches to contractual interpretation.

The Ontario employment law bar has written a whole lot about how we are firmly in a pro-employee era, as a result of a series of decisions, with the latest entries being somewhat controversial. As such, I will summarize the latest developments.

It is settled law in Ontario that a termination provision that breaches the Employment Standards Act, 2000 (ESA) will make the entire termination clause unenforceable, even if the offending provision is not relied on at the time of dismissal. Last year, the decision of Dufault v. The Corporation of the Township of Ignace made eyes roll by determining that language such as “at any time” and “sole discretion” breached the Ontario ESA because the statute prohibits terminations for certain reasons, such as preventing employers for dismissing an employee for taking a protected leave.

HR lawyers were not convinced, since the Ontario ESA does not prohibit terminations on the basis of timing - employment can be terminated during a protected leave if the reason is entirely unrelated to the employee being on leave. Ontario courts have not provided clarification with respect to the timing question.

East versus West: Baker

Nonetheless, Dufault was followed by Baker v. Van Dolder’s Home Team Inc. (Baker). While Dufault language remains very much offside, Baker is currently under appeal. This will hopefully bring some clarity to Ontario case law, especially as there have been two recent conflicting Superior Court decisions that have not followed Dufault.

Nonetheless, the Dufault and Baker decisions show how Ontario’s approach to interpretation is technical and employee-friendly — our courts will find any reason to invalidate a termination clause. It feels like anything that could potentially breach the ON ESA risks dooming a termination clause, even if the language seems innocuous and inconsequential to the parties’ intentions. We will see if the Baker appeal provides a change in direction.

Finally, it is important to note that the enforceability of termination clauses is a much more complicated issue in Ontario than elsewhere. This is largely due to the Ontario ESA establishing a higher standard — wilful misconduct — than just cause at common law to disentitle employees from their statutory termination entitlements. In other provinces, just cause at common law disentitles employees from their statutory entitlements, so these jurisdictions do not have to consider the enforceability of just cause provisions to the same extent.

British Columbia’s appeal to common sense

In Egan v. Harbour Air Seaplanes LLP (Egan), the BC courts charted a different path to their Ontario counterparts, effectively indicating that the technical approach of dissecting every word to find ambiguity is not the preferred approach. The court took a “practical” and “common-sense” approach to contractual interpretation. This means that BC courts are not prepared to strike a clause just because of an unnecessary word or phrase, if there is no actual ambiguity or breach of employment standards legislation.

The BC Court of Appeal, ruling on Egan, confirmed that the following without cause clause was enforceable:

 “The Harbour Air group may terminate your employment at any time without cause so long as it provides appropriate notice and severance in accordance with the requirements of the Canada Labour Code.”

The court found that it clearly established the employee’s termination entitlements and rebutted the common law presumption of reasonable notice. This determination was at odds with the plaintiff’s arguments, which tried to apply Ontario’s approach of impugning every word in order to find the clause unenforceable.

Instead, the court noted that “[p]roper contractual interpretation that seeks to determine the true intentions of the parties is not accomplished by disaggregating the words in a termination clause looking for ambiguity as a means to find the clause unenforceable.”

 The court in Egan, interpreting the contract as a whole and taking into account the circumstances at the time of execution, found that termination provision clearly spoke to the parties’ intention to rebut the common law and have the Canada Labour Code’s notice requirements apply.

Pith and substance

The approach in Egan is good for employers, as its practical and common-sense approach will likely result in fewer Dufault situations, where clauses are struck on controversial grounds. Indeed, the clause in Egan would be unenforceable in Ontario, as it contains Dufault language, despite it clearly stating that notice will be provided in accordance with the Canada Labour Code’s requirements.

In comparing Ontario and BC’s approaches to interpretation, another key takeaway is that employers should always work with local counsel, as what is enforceable in one province will not necessarily be enforced in another. Employers cannot just assume that Ontario decisions will be followed or even considered authoritative, as Egan shows.

That said, it remains advisable to avoid extraneous language, regardless of what province you are in. Using clear and simple language in termination clauses is a best practice.

David Gelles is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].