Some Important Employment Law Cases in Ontario

In Canada, employment law is essentially a labyrinth of various pieces of rules that are found in different aspects of the legal system, including:

legislation (or statutes)
common law (or cases decided by judges that become binding legal precedents)
employment contract

Depending on whether an employer and employee are governed by provincial employment law or federal Canadian employment law, the legislation will differ. For instance, the Ontario Employment Standards Act, 2000 applies to all non-unionized employees where provincial law applies, whereas the Canada Labour Code applies to all non-unionized employees where federal law applies (e.g., employees that work for banks, airlines, telecommunications and national transportation companies). Likewise, for human rights matters, the Ontario Human Rights Code applies to all provincially-regulated employees, whereas the Canadian Human Rights Act applies to all federally-regulated employees. These “pieces of legislation” are an important element that typically establish the basic legal standards applicable to all regulated workplaces.

Likewise, an employment contract is a binding legal agreement that the parties (voluntarily) negotiate and enter into, which usually establishes the rights and responsibilities both an employer and employee have agreed to follow. Put simply, it sets out the framework by which any potential questions or disputes should be settled, such as rules regarding employment termination, compensation entitlements, post-termination restrictions on an employee’s activity (such as confidentiality and non-solicitation). Generally, these are prepared by experienced employment lawyers for employers.

When employment disputes cannot be resolved by the parties independently (such as severance package negotiations following a wrongful dismissal), the courts will typically decide the issue. In these cases, the court decisions themselves become another pillar of employment law, with rules and requirements that all parties look to when looking to understand their rights and obligations at work. Overtime, some of these court cases become very important (particularly in areas not covered by legislation), or when courts are asked to come up with a creative rule to cover a unique employment issue or dispute. In the following article, we discuss a few of those most recent cases:

Termination Clauses: A Continued Focus on Compliance

Over the past few years, the courts have been asked to resolve various wrongful dismissal claims and constructive dismissal claims, resulting in an increase focused on termination clauses. These are specific sections in an employment contract that are intended to cover (and often minimize) an employee’s compensation entitlements if their employment is terminated by the employer, including termination pay and severance pay. Oftentimes, the courts conclude that termination clauses are invalid and unenforceable because they fail to follow the Ontario Employment Standards Act minimum requirements, in which case, the employee’s are entitled to receive their full severance pay calculated under common law.

Tan v. Stostac Inc., 2023 ONSC 2121

The facts of the case were fairly straightforward. The facts of the case were fairly straightforward. The employee was terminated for reasons of economic hardship caused by COVID-19. In deciding on the validity of the termination clause, the court invalidated the entire termination provision of an employment agreement due to non-compliance with the ESA. The clause allowing termination for “just cause” without proper notice violated the ESA’s requirements. Even though the contract had an “ESA saving” clause, the Court ruled that the clause could not override statutory rights. As a result, the employee was awarded severance pay equivalent to seven months’ salary. This case underscores the importance of having a well-crafted employment contract that aligns with the latest legal standards and avoids unenforceable terms.

Celestini v. Shoplogix Inc., 2023 ONCA 131

In this other notable case, the court dealt with an employee challenging the enforceability of his termination provision due to material changes in his job duties over time. The Ontario Court of Appeal ruled that substantial alterations to an employee’s role could render an employment agreement void, even if the employee’s job title remained unchanged (this rule is called “changed substratum“). This case highlights how employers must ensure that employment contracts are kept up-to-date with any changes in an employee’s role, or risk losing enforceability of key terms, including termination provisions.

The Pitfalls of Fixed-Term Employment Contracts

As we have often times cautioned in our employment law blogs, employers using fixed-term employment contracts should be mindful of the legal risks when structuring these agreements, as early termination can lead to unexpected costs. Employees on fixed-term contracts are typically entitled to the remainder of their agreed-upon salary if the contract is terminated prematurely.

Kopyl v. Losani Homes (1998) Ltd., 2024 ONCA 1999

In this case, the courts clarified that fixed-term contracts are permissible under the Ontario Employment Standards Act, but emphasized the financial obligations of employers in the event of early termination. In particular, the court affirmed the general rule that if a fixed-term employment contract is terminated before its expiration date, the employer will be required to pay the employee the remaining value of the contract. This ruling underscores the importance of understanding the potential consequences of prematurely ending a fixed-term contract.

Additionally, the court clarified that just because a contract establishes a fixed term of the contract, it is not by nature a termination clause. In fact, if a fixed term contract has an earlier termination clause that is invalid for some reason, the employee’s legal recourse is for damages for the balance of the remaining term of the fixed-term, not reasonable notice of termination under common law.

Monterosso v. Metro Freightliner Hamilton Inc., 2023 ONCA 413

In this case, the court clarified the concept of mitigation in the context of fixed-term contracts. Although a contractor was terminated prematurely, the court ruled that he had a duty to mitigate his damages. However, since the employer did not demonstrate that the contractor failed to do so, the court upheld the award of damages for the balance of the contract. This case highlights the importance of seeking professional advice from a wrongful dismissal lawyer to assess whether there are options for mitigating damages in these situations.

Busting the 24-month Cap on Notice Periods

Despite the traditional “cap” of 24 months for notice periods (or severance packages), the courts have occasionally awarded longer reasonable notice periods to wrongful dismissal or constructive dismissal employees, particularly in cases involving long service and specialized roles. In exceptional cases, employees may be entitled to more than the typical 24-month notice period.

Milwid v. IBM Canada Ltd., 2023 ONCA 702

In Milwid, an employee with 38 years of service was awarded a 26-month reasonable notice period, despite the general upper limit of 24 months for such claims. The Court took into account the employee’s unique skills, the uncertain economic climate, and his position in a highly specialized field. This case underscores the importance of reviewing older employment contracts to ensure they are still applicable and legally sound, especially in cases of long service.

Lynch v. Avaya Canada Corporation, 2023 ONCA 696

Similarly, in Lynch, the Court of Appeal upheld a 30-month reasonable notice award for an employee with 38 years of service. The Court noted that “exceptional circumstances,” such as a highly specialized skill set and the scarcity of comparable positions in the area, justified an extended notice period. Employers should be aware that, in rare situations, employees may be entitled to longer notice periods based on the specifics of their case.

Conclusion: The Importance of Expert Employment Lawyer Guidance

As these wrongful dismissal cases illustrate, it is important for employers to regularly review their employment contracts with employment lawyers to ensure that they are current and valid. Whether you’re an employer seeking to negotiate a severance package or an employee dealing with a wrongful dismissal or constructive dismissal, consulting an experienced employment lawyer in Toronto is crucial for protecting your rights and avoiding costly legal pitfalls. If you’re facing the termination of your employment or need a severance package review, seeking the advice of an expert employment lawyer can ensure that you receive the fair compensation to which you are entitled.

If you are dealing with a termination issue, it is highly advisable to consult a wrongful dismissal lawyer or constructive dismissal lawyer to evaluate your legal options and help you navigate the complexities of employment law. By doing so, you can better protect your rights and avoid costly legal disputes down the road.

Book a Consultation with an Employment Lawyer in Toronto

At Bune Law, we understand and are familiar the complexities of workplace law and are committed to helping both employers and employees navigate these challenges, including understanding just cause vs. wilful misconduct. Whether you are an employer or employee dealing with employment contracts, workplace disputes like a wrongful dismissal or constructive dismissal, or simply need guidance on your rights and obligations for a severance package review and negotiation, our experienced employment lawyer is here to assist you.

Book a confidential consultation with our Toronto employment law firm to protect your legal rights to understand your options and protect your rights.

Why Choose Bune Law When You Need an Ontario Employment Lawyer?

- Experience in all areas of workplace law, including wrongful dismissal claims, constructive dismissal claims, severance package reviews, severance package negotiations, discrimination and human rights disputes, and employment contract reviews, including navigating the important issue between just cause vs. wilful misconduct in Ontario employment law.
- Proven track record of successfully resolving workplace disputes through negotiation, mediation, and employment litigation.
- Compassionate and personalized approach to each case, ensuring tailored solutions that meet your specific needs.

If you need a Toronto employment lawyer who is committed to delivering strong results and proactive solutions, please contact Bune Law online or by phone today at 647-822-5492.