In another decision, the court has emphasized the enduring influence of the Waksdale v. Swegon North America Inc., 2020 ONCA 391 case on the enforceability of termination clause in employment contracts. The Court’s ruling in De Castro v. Arista Homes Limited, 2025 ONCA 260 underscores the necessity for employers to ensure their termination clauses align with the Ontario Employment Standards Act, 2000 (the “ESA“) and highlights the importance of assisting employees in mitigating damages following termination.
Background of the Case
In De Castro v. Arista Homes Limited, the employee had worked as a décor store manager for 5 years, earning an annual salary of $80,000 plus benefits and a $5,000 annual bonus. Her employment was terminated without cause in October 2020, during the peak of the COVID-19 pandemic. At the time of termination, she was 49 years old.
The employment contract included a termination provision that defined “cause” broadly, encompassing any act or omission that would legally permit the employer to terminate employment without notice or pay. Specifically, this employment contract termination clauses provided as follows:
If you are terminated for Cause or you have been guilty of wilful misconduct, disobedience, breach of Employment Agreement or wilful neglect of duty that is not trivial and has not been condoned by ARISTA, then ARISTA will be under no further obligation to provide you with pay in lieu of reasonable notice or severance pay whether under statute or common law. For the purposes of this Agreement “Cause” shall include your involvement in any act or omission which would in law permit ARISTA to, without notice or payment in lieu of notice, terminate your employment. (Emphasis added)
This expansive definition was found to exceed the grounds for dismissal outlined in the ESA.
Employee’s Argument
The employee argued she was entitled to common law reasonable notice because the termination clause in her employment contract was legally unenforceable. She relied on the court decision in Waksdale v. Swegon North America Inc., which held that if an employment contract contains a termination clause that is contrary to the minimum standards of the ESA, all termination paragraphs in the contract are unenforceable, and the employee is entitled to common law notice, even if the offending termination clause is not at issue. The employee acknowledged the offending clause dealt with termination for cause and she was not terminated for cause. However, she argued that if the “termination for cause” provision was contrary to the ESA’s minimum standards, the “termination without cause” provision would also be unenforceable (in line with the court’s previous decision).
Employer’s Argument
The employer argued the termination clause was enforceable and limited her to the ESA’s minimum requirements (i.e., statutory notice of termination and severance pay). In addition, the employee failed to mitigate her damages by securing comparable employment. Finally, it would be unfair if the court were to decide the case by summary judgment. The analysis in this Insight focuses on the termination provision and mitigation issues only.
Court’s Analysis of Termination Provisions
The Court referenced the Ontario Court of Appeal’s decision in Waksdale, which established that if any part of a termination clause violates the ESA, the entire clause is unenforceable. In this case, the Court determined that the “cause” provision in the employment contract was broader than the ESA‘s criteria for dismissal without notice, rendering all termination provisions in the contract unenforceable.
The Court emphasized that the termination provisions must be read as a whole. The inclusion of a “cause” provision that exceeds the ESA‘s standards invalidates the entire termination clause, even if other parts of the contract might comply with the ESA. This interpretation aligns with the Court of Appeal’s stance that employment agreements must be interpreted in their entirety, and one unenforceable provision can taint the entire agreement.
Employer’s Failure to Prove Mitigation of Damages
In addition to addressing the enforceability of the termination clause, the Court examined the employer’s obligation to prove that the employee failed to mitigate her damages. The employer contended that the employee did not make reasonable efforts to find comparable employment after her termination.
However, the Court found that the employer did not provide sufficient evidence to support this claim. Notably, the employer failed to offer assistance such as reference letters, job leads, or reemployment counseling. Furthermore, the employer did not present evidence of comparable positions that the employee should have applied for during the notice period.
The Court recognized that the employee’s delay in seeking new employment was influenced by personal circumstances, including her daughter’s cancer diagnosis and subsequent passing. The Court emphasized that employees are not expected to achieve perfection in mitigating damages; rather, they are required to make reasonable efforts. In this case, the employee’s actions were deemed reasonable under the circumstances.
Calculating the Employee’s Severance Package and Reasonable Notice Period
The Court assessed the appropriate notice period based on factors outlined in the landmark case Bardal v. Globe & Mail Ltd., which include the character of employment, length of service, age, and availability of similar employment. Considering these factors, the Court determined that the employee was entitled to eight months of notice.
Additionally, the Court awarded 10% of the employee’s salary in lieu of lost benefits, as the employer did not provide evidence regarding the maintenance of group benefits coverage during the notice period.
Implications for Employers
The De Castro decision serves as a cautionary tale for employers regarding the drafting of termination clauses in employment contracts. Employers are urged to ensure that their termination provisions comply with the ESA to avoid rendering the entire clause unenforceable.
Moreover, employers have a responsibility to actively assist employees in mitigating damages following termination. This includes providing support such as reference letters, job leads, and reemployment counseling. Failure to do so may result in the employer being unable to prove that the employee failed to mitigate damages, potentially leading to increased liability.
Employers are also reminded that external factors, such as economic conditions and personal circumstances, can influence an employee’s ability to find new employment. Courts will consider these factors when determining the reasonableness of an employee’s efforts to mitigate damages.
Conclusion
The De Castro decision reinforces the importance of adhering to the standards set forth in the ESA when drafting termination clauses in employment contracts. Employers must ensure that their contracts are clear, specific, and compliant with legal requirements to avoid unintended consequences. Additionally, providing support to terminated employees in their job search is not only a best practice but also a legal obligation that can impact the outcome of wrongful dismissal claims.
For employers seeking guidance on drafting enforceable termination clauses or navigating wrongful dismissal claims, consulting with an experienced employment lawyer in Toronto is advisable. An employment contract lawyer can provide valuable assistance in ensuring that employment agreements are legally sound and that employers fulfill their obligations to employees during and after the termination process.
For many employers, termination of employment is a difficult and confusing time, especially when it comes to drafting an employment contract. Therefore, in a wrongful termination of employment, it is important for employers to consult with an experienced Ontario employment lawyer to assess the impact of a termination clause in an employment contract by reviewing to understand an employer’s options, including when it comes to a severance package. If you are an employer or employee needing to speak with an experienced Ontario wrongful dismissal lawyer to discuss your options and next steps on how to deal with workplace issues, call Bune Law, employment law firm in Toronto. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.