Review Employment Contracts: Termination Clause Should Not Allow a Termination “At Any Time”
In another recent Ontario employment law case, the court has invalidated another termination clause in an employment contract. Taken together with many recent cases, this new court decision should force many employers to consider re-visiting their employment contracts to ensure compliance with the ever-changing employment landscape.
Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029
Facts
The employee, Ms. Dufault, commenced her employment with the employer in October 2021. At some point, she was promoted to a new position and signed fixed-term employment contract with an end date in December 2024. However, in January 2023, the employer terminated her employment without cause. As a result, she sued the employer in a wrongful dismissal claim to obtain her financial severance package compensation.
How did the employment lawyer attempt to invalid the employment contract and why bother doing so? To find out, it is important to always keep in mind to review employment contracts with experienced employment lawyers to find a strategy to obtain a larger severance package in a wrongful dismissal claim.
As we have often discussed on this Ontario employment law blog, it is an important strategy in all wrongful dismissal or constructive dismissal claims, particularly when an employee (through an experienced employment lawyer) attempts to negotiate a better severance package than what was originally offered by an employer (which is more often than not a low-ball, unfair severance pay offer).
In this case, after deciding to review employment contracts, the Ontario employment lawyer sought to invalid the termination clause in the fixed-term employment contract‘s by arguing, among reasons:
- the “for cause” section of the termination clause in the employment contract stated that the employer could terminate the employee’s job “at any time” without notice of termination or pay in lieu of notice (severance package), which violates the Ontario Employment Standards Act, 2000 (“ESA“)’s prohibition on employers terminating employment during specific circumstances, such as on the conclusion of the employee’s leave of absence (e.g., medical leave, pregnancy leave, etc.), or in reprisal for attempting to exercise a right under the ESA.
- the “for cause” portion of the termination clause violates the ESA by giving the employer the right to withhold the minimum requirements of notice of termination, severance or termination pay if terminated “for cause”. This invokes the common law standard that is lower and does not apply to the ESA, since neither the ESA nor its regulations contemplate a “for cause” dismissal. Rather, these minimum requirements must be paid under the ESA, except in specific circumstances, such as if the employee resigns or has been found “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”
- the termination “without cause” section violated s. 60 of the ESA because it suggested less payment in lieu of notice than would be required by the ESA. Specifically, it sought to exclude payment of all “regular wages,” and refers only to the employee’s base salary and no other payments (including vacation pay)
Court Decision
In deciding on the wrongful dismissal claim, the court accepted the employee’s arguments and decided the termination clause were not enforceable for violating the ESA in several respects:
- First, the termination without cause section was invalid because it suggested the employer could terminate the employee in its “sole discretion” and “at any time”. This is a novel argument to conclude that a termination clause in an employment contract is invalid. As the court noted:
“Thirdly, the plaintiff submits that Article 4.02 misstates the ESA when it gives the employer “sole discretion” to terminate the employee’s employment at any time. I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee’s leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute.”
- Secondly, the termination clause allowed the employer to terminate the employee “for cause” by withholding minimum notice of termination (or a severance package), which is a standard that does not exist under the ESA and is lower than that the standard required under the ESA consisting of: “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”. In fact, it defined conduct the employer could rely on to terminate “for cause” that does not rise to the level of “wilful misconduct”, such as “failure to perform services”.
- Thirdly, the termination without cause section was invalid because it allowed for less than the required amount of payment in lieu of notice. Specifically, the termination clause attempted to limit the employee’s severance package payment only to “base salary”, which excluded all other forms of “regular wages,” including commissions, vacation pay and sick days.
After finding that the employment contract’s termination clause is invalid, the employee was provided with a severance package consisting of the remaining 101 weeks of salary and benefits (the balance of the fixed term contract that was terminated earlier than its conclusion date).
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. Most importantly, it is important to always review employment contracts (especially termination clauses) with lawyers for employees or lawyers for employers with experience in the field. 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.