A recent ruling from the Ontario Court ruling should prompt a review of the language used in every employment contract termination clause.
Background
The plaintiff was initially hired by the Township of Ignace (the “Township”) in late 2021 before transitioning to a new position with the Township as a Youth Engagement Coordinator in 2022. In November she signed a fixed-term agreement specifying that her employment in that role would continue through December 31, 2024. On January 26, 2023, the plaintiff’s employment with the Township was terminated on a “without cause” basis.
At the time of the termination of her employment, the plaintiff had a base salary of $75,000 per year, as well as various benefits that included life insurance, critical illness insurance, accidental death and dismemberment insurance, extended health and dental benefits, long-term disability benefits, and a pension.
Facts
In terminating the plaintiff’s employment, the Township relied on Article 4.0 of the fixed-term agreement, which contained both a “with cause” (clause 4.01) and a “without cause” (clause 4.02) termination provision.
4.01 The Township may terminate this Agreement and terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee’s employment is terminated with cause, no further payments of any nature, including but not limited to, damages are payable to the Employee, except as otherwise specifically provided for herein and the Township’s obligations under this agreement shall cease at that time. For the purposes of this Agreement, “cause” shall include but is not limited to the following:
(i) upon the failure of the Employee to perform the services hereinbefore specified without the written approval of Municipal Council and such failure shall be considered cause and this Agreement and the Employee’s employment terminates immediately;
(ii) in the event of acts of willful negligence or disobedience by the Employee not condoned by the Township or resulting in injury or damages to the Township, such acts shall be considered cause and this Agreement and the Employee’s employment terminated immediately without further notice.
4.02 The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows:
(i) the Township will continue to pay the Employee’s base salary for a period of two (2) weeks per full year of service to a maximum payment of four (4) months or the period required by the Employment Standards Act, 2000 whichever is greater. This payment in lieu of notice will be made from the date of termination, payable in bi-weekly installments on the normal payroll day or on a lump sum basis at the discretion of the Township, subject at all times to the provisions of the Employment Standards Act, 2000.
(ii) with the exception of short-term and long-term disability benefits, the Township will continue the Employee’s employment benefits throughout the notice period in which the Township continues to pay the Employee’s salary. The Township will continue the Employee’s short-term and long-term disability benefits during the period required by the Employment Standards Act, 2000 and will pay all other required accrued benefits or payments required by that Act.
(iii) all payments provided under this paragraph will be subject to all deductions required under the Township’s policies and by-laws.
(iv) […]
Following clause 4.02 of the employment contract, the Township paid the plaintiff two weeks’ termination pay ($2,884.61). It also continued her benefits for two weeks.
Don’t Get Mad – Get Even
The plaintiff began legal proceedings against the Township for breach of contract and subsequently brought a motion for summary judgment. The position of the plaintiff was the termination provisions were contrary to the Employment Standards Act (ESA) and therefore unenforceable. She sought damages for the entirety of the fixed-term contract, less amounts already paid.
Decision
The court found in favour of the plaintiff, holding that the termination provisions in question, as drafted, contravened the ESA in three distinct ways.
The first and second findings that supported the court’s decision to invalidate the termination provision were not new and had already been established in previous decisions. However, the third finding was novel.
- the court noted that neither the ESA nor the regulations made under it refer to the possibility of termination “with cause”. Rather, Ontario Regulation 288/01 (Termination and Severance of Employment) made under the ESA simply indicates that employees who are “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” are not entitled to notice of termination or termination pay. Accordingly, in the court’s view, clause 4.01 – which explicitly referenced termination “with cause” – implied a common law approach to wrongful dismissal by giving the Township the right to withhold termination pay and severance pay in the case of termination “with cause” in circumstances where the ESA would not necessarily allow the Township to do so. Although the Township attempted to argue the grounds for termination “with cause” listed in the contract essentially equated to the grounds for termination specified in Ontario Regulation 288/01, the court did not agree. Instead, it found that the Township had seemingly conflated the grounds for termination under the ESA with a common law standard not present anywhere in the Act or its regulations.
- the court held that though clause 4.02 required the payment of the employee’s base salary during the notice period, the expressions “base salary” and “regular wages” do not have the same meaning. By using the phrase ‘base salary’, instead of a more broadly inclusive term, such as ‘regular wages’, the clause failed to guarantee that all the employee’s minimum termination entitlements would be provided during the statutory notice period which, as the court noted, could include compensation that is more broad than only base salary. As such, the court found that the Township had violated section 60 (Requirements during the notice period) of the ESA. The court also took issue with the fact that the clause gave the Township the option to provide the employee with termination pay in bi-weekly installments, which it indicated violated section 61 (Pay instead of notice) of the Act.
- notably, the court accepted the plaintiff’s argument that clause 4.02 misstated the ESA when it gave the Township “sole discretion” to terminate the employee’s employment “at any time”. Highlighting that the ESA expressly prohibits the termination of an individual’s employment after a protected leave or in reprisal for attempting to exercise a right under the Act (section 74), the court confirmed that the employer’s right to dismiss is not absolute.
The court agreed that a termination provision which allowed the employer to terminate at any time violated the ESA, and this became one of several reasons that the court relied upon to invalidate the termination provision in the employee’s contract in this case.
This decision is a great example of ways a termination provision in an employment agreement can inadvertently contravene the Employment Standards Act making the entire provision unenforceable.
In the absence of an enforceable provision for the early termination of the fixed-term agreement, the court determined that the plaintiff was entitled to be paid the balance of her contract. She walked away with damages of $157,071.57.
Key Take Away
For employers – check the language used in your termination clauses.
For former, or soon to be, former employees – check the language used in your termination clauses.
Obligatory Disclaimer
You don’t always need a lawyer or paralegal to write an employment contract but this little tale of cautionary woe is for everyone who mutters, legal advice – who needs that! And as the story shows, sometimes former employees could benefit from hiring someone for an hour or two. But that is up to you.
Finally, while the above is intended to be helpful, it may not apply to your case, may not be correct, and is certainly not legal advice for your particular matter.