The hits just keep on coming. In the latest in a string of cases, Henderson v. Slavkin et al., 2022 ONSC 2964 ["Henderson"] is yet another example of the Ontario courts invalidating a termination provision in a written employment agreement for contradicting the Employment Standards Act, 2000, SO 2000, c 41 ("Ontario ESA") and the Termination and Severance of Employment, O. Reg. 288/01 (the "Regulation"). However, unlike a number of recent cases, which relied upon an unenforceable 'for cause' termination provision to invalidate the 'without cause' provision, the Court in Henderson found that language in the conflict of interest and confidentiality provisions could be used in a similar fashion.

Background

The defendant employers, Dr. David Slavkin and Dr. Melvyn Kellner, were oral surgeons. The plaintiff, Rose Henderson, was their receptionist. Ms. Henderson began her employment with the defendants in April 1990.

In November 2019, Dr. Slavkin and Dr. Kellner announced their retirement plans and Ms. Henderson was provided with six months' working notice. However, Ms. Henderson brought an action for wrongful dismissal. The main issue before the Court was whether Ms. Henderson's employment agreement contravened the Ontario ESA, amounting to wrongful termination and entitling her to common law damages.

Ruling

The Court reviewed the legality of three provisions to determine whether the termination provision in Ms. Henderson's employment agreement would be upheld.

1. Termination Provision

First, the Court found the without cause termination provision in Ms. Henderson's agreement was enforceable, limiting her entitlements to the statutory minimums in a manner that was compliant with the Ontario ESA.

However, the analysis did not end there.

2. Conflict of Interest Provision

Section 18 of Ms. Henderson's agreement contained limitations on her behaviour relating to conflicts of interest. The provision read as follows:

18. Conflict of Interest. You agree that you will ensure that your direct or indirect personal interests do not, whether potentially or actually, conflict with the Employer's interests. You further covenant and agree to promptly report any potential or actual conflicts of interest to the employer. A conflict of interest includes, but is not expressly limited to the following:

(a) Private or financial interest in an organization with which does business [sic] or which competes with our business interests;

(b) A private or financial interest, direct or indirect, in any concern or activity of ours of which you are aware or ought reasonably to be aware;

(c) Financial interests include the financial interest of your parent, spouse, partner, child or relative, a private corporation of which the [sic] you are a shareholder, director or senior officer, and a partner or other employer;

(d) Engage in unacceptable conduct, including but not limited to soliciting patients for dental work, which could jeopardize the patient's relationship with us.

A failure to comply with this clause above constitutes both a breach of this agreement and cause for termination without notice or compensation in lieu of notice.

In Ontario, even if an employee is terminated for just cause, they remain entitled to statutory notice of termination under s. 57 of the Ontario ESA. However, s. 2(1)(3) of the Regulation allows employers in Ontario to terminate without any notice of compensation in lieu of notice where the employer establishes that the employee is guilty of wilful misconduct, disobedience or wilful neglect of duty.

In Henderson, the Court disagreed with the defendants that the enumerated grounds for dismissal without notice or compensation in lieu set out in the conflict of interest section suggested wilful misconduct, disobedience or wilful neglect of duty as required by the Regulation. Further, the Court found that the enumerated provisions were overly broad, unspecific and ambiguous, making it difficult for an employee to know what was expected of them to avoid termination without notice or compensation in lieu.

In light of these findings, the Court found this section was invalid.

3. Confidentiality Provision

Section 19 of Ms. Henderson's agreement addressed her obligations in regards to the use and distribution of confidential information. The confidentiality provision read as follows:

19. Confidential Information. You recognize that in the performance of your duties, you will acquire detailed and confidential knowledge of our business, patient information, and other confidential information, documents, and records. You agree that you will not in any way use, disclose, copy, reproduce, remove or make accessible to any person or other third party, either during your employment or any time thereafter, any confidential information relating to our business, including office forms, instruction sheets, standard form letters to patients or other documents drafted and utilized in the Employer's practice except as required by law or as required in the performance of your job duties.

…

In the event that you breach this clause while employed by the Employer, your employment will be terminated without notice or compensation in lieu thereof, for cause.

This provision shall survive the termination of this Agreement.

The confidentiality section of the agreement stated that Ms. Henderson would be terminated without notice or compensation in lieu for disclosure of confidential information. However, the Court noted the possibility of confidential information being disclosed in a manner that was not wilful and/or where the breach is trivial, and as a result the Court concluded that the confidentiality clause was also in breach of the Regulation and therefore invalid.

Summary

Because the conflict of interest and confidentiality provisions in Ms. Henderson's employment agreement did not comply with the Ontario ESA and the Regulation, the agreement was invalidated. As a result, the Court concluded that Ms. Henderson was wrongfully terminated and was therefore entitled to common-law damages for an 18-month notice period instead of statutory minimum notice as set out in her employment agreement.

Takeaways of Henderson v. Slavkin et al.

This case has implications for employers in Ontario given the unique nature of the employment standards legislation in that province. The decision in Henderson makes clear that any termination-related language in an employment agreement that fails to strictly comply with the Ontario ESA and the Regulation can invalidate an otherwise enforceable termination provision. In other words, an employment agreement cannot remove an employee's entitlement to termination notice or compensation in lieu under the Ontario ESA except in cases of wilful misconduct, disobedience, or wilful neglect of duty as specified in the Regulation.

While the decision in Henderson is not directly applicable in other provinces where the employment standards legislation does not define "just cause" or contain specific exemptions to the provision of statutory notice as found in the Regulation, there is a risk that similar reasoning may be used to invalidate a termination provision.

For example, section 63(3)(c) of the British Columbia Employment Standards Act ("BC ESA") provides that an employer will not be required to provide statutory compensation for length of service where an employee is dismissed for "just cause". As "just cause" is not defined in the BC ESA or in any related regulations, the question of just cause will be "guided by common law principles to reflect the purposes and objectives of the [BC] ESA" (Employer (Re), 2021 BCEST 58). However, it is common for an employment agreement to provide a list of misconduct that will be deemed by the employer to constitute "just cause" for termination, allowing the employer to terminate without notice or pay in lieu of notice. Often, the conduct that is listed is not sufficient to reach the high common law standard of just cause. Accordingly, using the reasoning in Henderson and similar decisions out of the Ontario courts, defining "just cause" in an employment agreement in a manner that falls below the standard of "just cause" at common law, and therefore arguably falls below the standard of "just cause" under the BC ESA, could render an otherwise valid employment agreement vulnerable to attack.

In order to protect against costly common law damages for reasonable notice (which can reach - and sometimes exceed – 24 months of wages and benefits), it is important to update and maintain your employment agreements with the assistance of an experienced employment lawyer. If you would like to discuss this article further or have any questions, please contact a member of the Gowling WLG Employment, Labour & Equalities Group.