Under Ontario employment law, an employee’s relationship with their employer is governed by an employment contract. Although this is often found in a written document, usually it is through a simple verbal agreement. Among many other reasons, employment contracts are crucial for outlining each party’s rights and responsibilities during employment, such as:
- start date
- job title and responsibilities
- compensation (e.g., amount of salary, types of health benefits, bonus pay entitlement, pension plans, etc.)
- termination clauses
- post-termination restrictive covenants (e.g., non-solicitation agreement)
When there is a dispute between an employer and one of its employee, the courts typically find a resolution by applying the terms and conditions in the employment agreement. The most common dispute occurs when the employer decides to end the employment relationship – that is, termination of employment. If the parties cannot negotiate a resolution, such as through financial severance package negotiations, the employee may be able to bring a wrongful dismissal lawsuit against the employer.
Contrary to a common misconception, it is not “wrongful” for an employer to terminate the employment relationship. This is because, just like an employee is free to resign and is not expected to work forever, employers also retain the right to end the employee’s job. Rather, what makes a termination of employment “wrongful” is the employer either:
- terminates the employee’s job alleging “just cause” for termination when it does not exist (which deprives the employee of prior reasonable notice, or pay in lieu of reasonable notice); or
- not providing the employee with prior reasonable notice, or pay in lieu of reasonable notice).
Due to the disruptive financial and emotional impact a termination of employment has on a person’s ability to earn a livelihood, employer’s have important obligations when they decide to “pull the trigger” and fire the employee, such as;
- providing the employee with prior reasonable notice of termination, or pay in lieu of reasonable notice (also called “severance pay”); and
- be honest, respectful and sensitive in how the carry out the termination.
When dealing with wrongful dismissal claims, an employment lawyer’s battle usually involves determining whether the employee’s severance pay entitlements are limited by a valid termination clause in an employment contract. How do you determine if a termination clause in an employment contract is legal and enforceable by a court?
Termination Clause
This is a specific paragraph commonly found in an employment contract that an employer will rely on to try and severely limit the amount of notice of termination (or severance pay) it is contractually required to provide to the employee, specifically when it decides to let them go without cause (good reason). Many employees overlook how important this part of an employment contract is in terms of limiting their legal rights and options.
If a termination clause is not properly drafted, the employee may be entitled to greater severance pay under “common law” standards, as opposed to the statutory minimums required under the Employment Standards Act, 2000 (“ESA“). The termination clause is one important reason why it extremely important for employees (and employers) to seek an employment contract review with an experienced employment lawyer.
Termination for Cause
If the employment contact does not have a valid termination clause, the employer can terminate the employee’s job for “just cause” in one of two ways:
(1) “wilful misconduct, disobedience, or wilful neglect of duty” (ESA standard)
(2) “just cause” (common law standard)
In either scenario, the employer is essentially maintaining that the employee engaged in misconduct the employee has irreparably damaged the employment relationship between the employer and the employee. However, a key difference is that under the ESA standard, the employer has to prove the employee engaged in “intentional” wrongdoing (e.g., theft or consistently failing to report to work without justification), which can allow the employer to avoid having to provide even the minimum notice of termination or severance pay.
Termination Without Cause
If the employment contract does not have a valid termination clause, the automatic rule in Ontario employment law is that an employer must follow the more generous “common law” standard. That is, if the employer does have “just cause” for termination, sufficient prior notice of their last day of work, or the equivalent in severance pay . The amount of reasonable notice, or severance pay, will depend on the court’s complicated assessment of many factors, such as an employee’s:
- age
- years of service
- position
- likelihood of finding comparable employment
For example, a 46-year old managerial employee who is terminated from their employment with a company after 6 years of service, may generally be entitled to in the range of 6-8 months’ of prior notice (or the equivalent compensation as part of a severance package).
On the other hand, if the employer has “just cause” to terminate the employee’s job (which is rare), the employer does not have to provide the employee with prior reasonable notice or severance pay. Some examples of just cause for termination include:
Lamontagne v. J.L. Richards & Associates Limited, 2021 ONSC 2133
In an important new case, an Ontario court followed an expanding line of cases stemming from Waksdale v. Swegon North America and Sewell v. Provincial Fruit Co. Limited, which found that proving an employee is “guilty of willful misconduct, disobedience or willful neglect of duty” under the ESA is harder to prove than the standard of “just cause” under common law. As a result, it means that it will generally be much harder for an employer to avoid providing employee’s with the minimum notice of termination (or termination pay), benefits continuation and severance pay upon termination of employment. These decisions are significant because they refused to follow a recent controversial decision reached by the same court in Rahman v. Canon Design Architecture Inc., 2021 ONSC 5961.
Facts
In this case, the employee 36-year-old when her employment as a financial controller was terminated after about 6.5 years. In terminating her employment and providing her with only her minimum statutory entitlements under the ESA, the employer relied on a termination clause in her employment contract that stated:
“(a) Employment may be terminated for cause at any time, without notice.
(b) In the event that employment is terminated for any other reason, it is understood that you will have no entitlement to common law notice of termination. However, you will be provided with notice of termination or pay in lieu thereof and, if applicable, severance pay, both in accordance with the Employment Standards Act of Ontario or any successor legislation. With respect to notice of termination or pay in lieu thereof, it is understood that the minimum period of notice or pay in lieu thereof specified in the Act will be provided and will constitute your complete entitlement to notice or pay in lieu thereof.”
As is fairly common, the employee was of the view she was entitled to more severance pay upon termination. As such, she sued the employer for wrongful dismissal. The key issue in this case was whether the termination clause in her employment contract was valid? If not, she would be entitled to more generous severance pay under common law.
What Did the Court Decide?
As noted above, the court concluded that a termination clause which states that an employer does not have to provide notice of termination or termination pay if they terminate employment “for cause,” which is illegal and unenforceable. This is because it allows an employer to avoid providing the minimum statutory entitlements under the ESA for less serious issues of wrongdoing than the law permits – that is, where the employer has not proven the employee was found of “willful misconduct, disobedience or willful neglect of duty.”
For instance, it would be illegal under the ESA for an employer to refuse to provide minimum notice of termination to an employee if it terminates employee simply for poor work performance, since these situations usually do not involve the employee intentionally or wilfully committing wrongdoing – they’re simply just not performing up to the acceptable standards set by the employer.
As such, the court found the employee was entitled to damages for pay in lieu of common law reasonable notice of termination. After considering the employee’s age, years of service, position, and ability to find similar employment, it awarded the employee a higher-than-expected 10 months of severance pay compensation. Ordinarily, the employee would likely have been entitled to 6-8 months of severance pay compensation.
In this case, however, the court held that despite the employee’s short service and younger age, there was no evidence to justify providing her with a shorter notice period, especially given the negative impact caused by the COVID-19 pandemic on the economy – both of which were factors that justify increasing the employee’s reasonable notice period since the termination occurred on February 19, 2020, just as the pandemic struck.
Contact Bune Law Employment Lawyer
If you are an employee facing a termination of employment or wrongful dismissal, please contact Bune Law at 647-822-5492 arrange a consultation with an employment lawyer in Toronto to discuss your employment matter. A detailed consultation will allow you to determine your options, including severance package negotiations or pursuing a wrongful dismissal claim against your employer.
Disclaimer: The content on this website and blog is not legal advice or legal opinion of any kind, and is only to provide general information. It is in no way particular to your individual case and should not be relied upon in any way. The outcome of a legal matter depends on its unique circumstances, and prior successes are not indicative of future results. No portion or use of this website or blog will establish a lawyer-client relationship with the author, this law firm or any related party. Should you require legal advice for your particular situation, please fill out the form below, or call 647-822-5492, to request an initial consultation.
Toronto Employment Lawyer | Wrongful Dismissal Lawyer | Severance Pay Lawyer | Employment Lawyer Toronto