Ontario courts have relentlessly scrutinized and struck down termination provisions that purport to contract out of an employee's entitlements to reasonable notice at common law. 

 The most recent attack comes from the Ontario Superior Court in Thunder Bay in Dufault v. The Corporation of the Township of Ignace ("Dufault"), a decision released on February 16, 2024. 

The decision

The central issue before the Court was one that employment counsel are routinely tasked with answering: is the termination clause found within the employment agreement enforceable? In Dufault, there were arguably very glaring deficiencies with respect to the termination provisions which are now well settled by our highest courts in Canada, including:

  • It was a fixed term agreement with a term in excess of 12 months without proper provisions to allow for early termination of employment.
  • It included a Waksdale "for cause" provision indicating that the employee's employment could be terminated without provision of notice or pay in lieu of notice "for cause." (An employee is always entitled to minimum statutory entitlements unless they are guilty of willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer; "cause" at common law does not always meet with the higher standard under the ESA.)
  • It provided that only base salary would be continued if employment was terminated on a without cause basis. (The ESA requires that "regular wages" be continued through the minimum statutory notice period, which could include forms of compensation other than base salary, including commissions and non-discretionary bonus.)
  • It did not reference continuation of vacation pay through the statutory notice period. (Vacation pay must be paid on the regular wages earned/paid through the statutory notice period.)
  • It provided that the pay in lieu of notice would be paid by way of salary continuance. (The ESA requires that statutory pay in lieu of notice be paid by lump sum if employment is terminated with immediate effect, and severance pay by salary continuance if the employer and employee agree, otherwise it must be paid by lump sum.)

For the purpose of this bulletin, we are focusing on an issue dealt with by the Ontario courts for the first time, as was identified in the "termination without cause" provision of the Dufault clause:

The Township may at its sole discretion and without cause, terminate this Agreement and the Employee's employment thereunder at any time upon giving the Employee written notice as follows…

Plaintiff's counsel argued that the language underlined above "misstates the [Ontario Employment Standards Act ("ESA")] when it purports to have 'sole discretion' to terminate the plaintiff's employment 'at any time', when the ESA prohibits the employer from doing so in certain circumstances."

In its decision, the Court reviewed numerous principles of interpretation specific to employment contracts which boil down to a single overriding principle: any deficiencies or ambiguities in an employment contract will result in a finding favourable to the employee and not the employer.

The Court agreed with Plaintiff counsel's fifth argument, finding:

The [ESA] 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.

Analysis

With the greatest of respect to Madam Justice Pierce, we are of the view that this finding is wrong in law as it relates to the language "at any time." The ESA does not prohibit an employer from terminating an employee's employment at any time. We do not intend to comment on any other purported offending language for the purpose of this bulletin. 

Section 53 of the ESA deals with statutory leaves. Contrary to Justice Pierce's finding, this section does not state that an employer may not terminate an employee's employment during or at the end of a statutory leave, but rather provides:

53(1) Upon the conclusion of an employee's leave under this Part, the employer shall reinstate the employee to the position the employee most recently held with the employer, if it still exists, or to a comparable position, if it does not.

53(2) Subsection (1) does not apply if the employment of the employee is ended solely for reasons unrelated to the leave.

Section 53(2) expressly contemplates an employee's employment "ending" during or following a statutory leave. Accordingly, if the termination of the employee's employment is ended for reasons unrelated to the leave, then the employee's employment may be terminated either during or immediately following the leave. It is our view, therefore, that the language "at any time" does not violate the ESA. 

Regrettably, until this particular language has been considered by the Ontario Court of Appeal and Supreme Court of Canada, it will be contested by plaintiff side and defendant side employment counsel. This decision is not binding and no other judge is obliged to follow it, unless and until it is upheld by our appellate courts. 

Key takeaways for employers

Notwithstanding our interpretation of the ESA, and belief that the language "at any time" does not violate the ESA, as a result of this decision, employers would be well-advised to revisit their employment agreements with expert legal counsel.

There is no doubt that until the Court's reasons at paragraph 46 of its decision are addressed by our appellate courts, the words "at any time" – at least in the context of a without cause termination provision – will result in plaintiff counsel advising their employee clients to seek additional entitlements upon termination of employment As a result, revision to one's employment agreement may be necessary.

For further information on the enforceability of contractual termination provisions, or if you require assistance with the review and revision of the termination language in your existing employment agreements, please contact a member of the Employment, Labour & Equalities Group.