Labour & Employment Law Insights

Employer’s Failure to Comply with Termination Provision Renders it Unenforceable

May 10, 2021 | By Madeline Davis

Employment Litigation | Employment

Bottom Line

The Ontario Superior Court of Justice held that an employer’s failure to abide by the very termination provision it drafted amounted to a repudiation of the employment contract. Furthermore, following the reasoning set out in the Ontario Court of Appeal’s recent decision in Waksdale v Swegon North America, 2020 ONCA 391 (“Waksdale”), the Court determined that the termination provision was void for non-compliance with the Employment Standards Act, 2000 (“ESA”) in any event.  As a result, the employer was unable to rely on the termination provision to limit its liability, and was ordered to pay common law reasonable notice damages.

Background

The Plaintiff’s employment with the Defendant employer was subject to a written employment contract. The contract provided that, in the event that Plaintiff was terminated from her employment without just cause, the Employer would provide the Plaintiff with her minimum statutory entitlements under the ESA plus an additional two weeks of notice, or pay in lieu thereof.

The Plaintiff was terminated from her employment without cause. The Employer provided the Plaintiff her minimum statutory entitlements under the ESA, but refused to provide her the additional two weeks of pay unless the Plaintiff agreed to execute a full and final release and indemnity.

Although the Employer later apologized to the Plaintiff and paid her the additional two weeks of pay, the Plaintiff argued that the Defendant’s initial refusal to pay such amount constituted a repudiation of the contract, and the Defendant therefore could not rely on the contract to limit the Plaintiff’s entitlements to common law reasonable notice of termination. 

The Plaintiff also relied on the Ontario Court of Appeal’s decision in Waksdale to argue that the termination for cause provision was unenforceable and, as such, the without cause provision was also unenforceable.

The Termination Provisions

The Termination  provision in the Plaintiff’s contract stated:

Termination Without Cause – we may terminate your employment in our sole discretion, without cause, by providing you with two weeks of notice or pay in lieu of notice (or some combination thereof), plus the minimum notice or [ay in lieu of notice (or some combination thereof) and severance pay (if any) then required by the ESA. Rand will also continue your Benefits to the extent and for the minimum period required by the ESA.

Termination With Cause – We may terminate your employment for just cause at any time without notice, pay in lieu of notice, severance pay, or other liability, subject to the ESA. For the purposes of this Agreement, “just cause” means just cause as that term is understood under the common law and includes, but is not limited to: [list of eleven categories of just cause].

Three of the eleven categories of just cause listed in the contract included:

  1. a material breach of the agreement, or the Employer’s employment policies;
  2. unacceptable performance standards; and
  3. repeated unwarranted lateness, absenteeism or failure to report to work.The Defendant’s Conduct Constituted Repudiation of the Employment Contract

The Court noted that repudiation of an employment contract occurs when the words or conduct of one party, in this case the employer, demonstrate an intention to no longer be bound by the terms of a contract.

The Court specifically highlighted that the employer’s request that the Plaintiff sign a release in exchange for receiving two weeks of wages was not a casual request, nor an accidental slip. The termination letter referenced a requirement that the Plaintiff sign the release as a condition to payment four separate times.  The release itself was also expansive.  The release not only precluded the Plaintiff from making further claim against the Defendant, but also included various other substantive terms including an indemnity provision, a consent to injunctive relief in the event of a breach, a non-disparagement provision, and a confidentiality clause. The Court found that it would have taken the Defendant time and purpose to prepare both the termination letter and the release.   

Further, after the Plaintiff initially challenged the employer’s requirement that she sign the release, the employer reiterated its position. Taken together, the Court held that a reasonable person assessing the Employer’s conduct would conclude that the employer no longer intended to be bound by the employment contract, and found the Defendant’s conduct amounted to repudiation.

It is also important to note that the Court found the contract had been repudiated even in light of the employer’s subsequent conduct and its attempt to remedy the breach. The Defendant’s apology to the Plaintiff and rescission of the requirement to sign the release did not cure its repudiation of the contract. 

The Termination Provision Was Unenforceable

Even if the employer had not repudiated the employment contract, the Plaintiff likely would have been entitled to common law reasonable notice damages. Following the Ontario Court of Appeal’s recent decision in Waksdale, the Court found that the Termination With Cause provision was unenforceable, as it attempted to contract out of the Plaintiff’s ESA entitlements. This had the effect of rendering the Termination Without Cause provision unenforceable as well.

Specifically, the Court found that the Termination With Cause provision was ambiguous. The Court suggested that the first sentence indicated the Employer would comply with the ESA, and the Plaintiff’s employment could be terminated at any time without notice or pay in lieu of notice or severance pay if the Plaintiff engaged in conduct that rose to the level of wilful misconduct, disobedience or wilful neglect of duty that was not trivial and not condoned by the Employer. However, the inclusion of the second sentence, and the list of eleven categories of just cause, flew in the face of compliance with the ESA because several of those categories could not be classified as wilful misconduct, disobedience, or wilful neglect of duty.

In light of the ambiguity, the Court found that the Termination With Cause provision amounted to an unlawful attempt to contract out of the Plaintiff’s minimum entitlements under the ESA and, as such, was unenforceable.

Check the Box

For employers, this case highlights the importance of abiding by the terms of their own employment agreements. Employers who fail to do so may be found liable to provide common law reasonable notice damages, even where the termination provision would otherwise have been enforceable.

This case also serves as another reminder to employers that any ambiguity in their employment agreements will be read in the employee’s favour.  In this case, the inclusion of an enumerated list of offending conduct in the termination provision, some of which could not be appropriately characterized as wilful misconduct, disobedience or wilful neglect of duty, is what ultimately led to the clause being deemed unenforceable.  Where employers wish to itemize what conduct will and will not be tolerated in the workplace, it may be preferable to include these expectations in a policy document rather than an employment agreement.

Date: March 22, 2021
Forum: Ontario Superior Court of Justice 
Citation: Perretta v Rand A Technology Corporation, 2021 ONSC 2111

Need more information?

For more information about drafting employment agreements and termination letters, or for support and representation in wrongful dismissal litigation, reach out to Madeline Davis at 416.408.5528 or your regular lawyer at the firm.

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