Termination provisions negotiated by employee and employer of equal bargaining power – Waksdale distinguished

Rahman v Cannon Design Architecture Inc. ("Rahman")^[1], is a recent decision of the Ontario Superior Court of Justice where the Court rejected the plaintiff's argument that the "just cause" termination provision in the employment contract amounted to an attempt to contract out of the Employment Standards Act, 2000 ("ESA"). In so doing, the Court distinguished the case from Waksdale v Swegon North America Inc.^[2] ("Waksdale"), one of the most noteworthy employment decisions of 2020.

Background

The plaintiff in Rahman was a high-level employee with four years of service prior to her employment termination without cause. There was a written employment agreement in place, including "just cause" and "without cause" termination provisions.

The "just cause" provision was similarly worded to the termination provision found unenforceable in Ojo v Crystal Claire Cosmetics Inc.^[3] ("Ojo")The Rahman "just cause" provision provided that the employer "maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct which constitutes just cause for summary dismissal."^[4] In Ojo (where the employment contract contained the same phrase "conduct that constitutes just cause for summary dismissal"), citing Waksdale, the Ontario Superior Court of Justice held that said provision was an illegal attempt to deprive the employee of their minimum ESA entitlements.^[5]

Having said this, it is important to note that in Waksdale, the Court of Appeal noted that courts interpreting an employment contract should recognize the power imbalance between employees and employers and "focus on whether the employer has, in restricting an employee's common law rights on termination, violated the employee's ESA rights."^[6]

Decision

The Court in Rahman distinguished Ojo and Waksdale on the basis that there was no inequality of bargaining power in Rahman: Ms Rahman was reasonably sophisticated, sought and obtained independent legal advice on the agreement in general and the termination provisions in particular and negotiations between the parties resulted in a material improvement to the termination provision.

The Rahman decision repeatedly emphasized the objective of contractual interpretation is to give effect to the mutual intention of the parties^[7], which is inferred from the surrounding circumstances.^[8] The Court further noted that "conclusions reached in another case…are of limited assistance in construing the intention of these parties to this agreement in this context" [emphasis added].

Considering the full context of the case, the Court found there was "no basis to apply a strict or even adverse construction approach to the termination provisions", considering in particular the following facts:

• the employee was reasonably sophisticated and had the benefit of independent legal advice before signing the contract;
• there was no marked inequality of bargaining power;
• the termination provisions in particular were the object of negotiation and the plaintiff's lawyer did not negotiate or object to the "just cause" termination provision;
• the negotiations resulted in material improvements for the benefit of the employee; and
• the final agreement included explicit language that the employer's liability would be the greater of the employee's entitlements under the ESA and the written employment agreement.^[9]

Key takeaways

Following are the key takeaways for employers following the decision in Rahman:

• While this case is helpful for employers, we must keep in mind that this decision can still be appealed, and it has yet to be seen how this lower court decision may be applied in future decisions.
• As it stands, this case may support employer arguments limiting the application of Waksdale line of authorities that favour interpreting provisions in employment agreements strictly and adversely against the employer. Such would be the case only in certain circumstances as set out above.
• Employers should maintain records of all employment contract negotiations, including communications and prior employment contract drafts.
• Drafting enforceable termination provisions will continue to pose challenges. Employers should seek legal advice on their employment contracts, and urge prospective employees to do the same (and give them enough time to actually do so).

Should you have any specific questions about this article or would like to discuss it further, you can contact the authors or a member of our Gowling WLG Employment, Labour & Equalities Group.