Court nixes valid termination clause because of illegal conflict of interest and confidentiality clause

In Henderson v. Slavkin et al., 2022 ONSC 2964 Justice Carole Brown dealt with the legality of an ESA Termination  Clause.

The actual termination clause itself was found to be OK, but both the confidentiality clause and the conflict of interest clause had the following sentence.

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. 

The trouble was that in both of these clauses the list of items that would constitute a breach was so broad that it vastly exceeded the concept of wilful misconduct under the ESA. For instance, the confidentiality clause defined confidential information as including any information about the assets of the employer. Presumably if the employee told a relative that her employer owned the building they worked out of, that this would constitute a breach.

Here is the funny part. This agreement was between a 63 year old receptionist and two 70+ year old dentists who were shutting down the dental practice and retiring. The employment agreement should have just covered the employer’s liability for termination costs, but instead the author of the agreement threw in these extra and completely unneeded clauses. Had they not included the one sentence referred to above, the ESA termination provisions would have been upheld, and because the plaintiff received 6 months’ working notice, this Plaintiff would have received zilch additional monies.

This case teaches us that defects in a termination clause can be found not only in the termination clause itself but also in any employment agreement that deals with termination. Thus lawyers should carefully review all agreements and policies to make sure that they do not offend the ESA.

This can include:

• All parts of the employment agreement
• Confidentiality Agreements
• Solicitation Agreements
• Stock Options and Bonus Plans
• Policy manuals and statements
• Ownership of intellectual Rights and inventions

In essence, any  agreement or policy that refers to the fact that a breach of that policy will lead to termination without compensation could invalidate any otherwise enforceable termination clause.

This issue really only affects employees under the Ontario Employment Standards Act as, unlike other jurisdictions, it does not use the concept of just cause but rather the much more limited concept of wilful misconduct.

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Barry B. Fisher LL.B.

Barry B. Fisher, LL.B., is a mediator and arbitrator of both employment and labour relations matters. He offers three forms of ADR based on clients’ needs: Mediation, Arbitration and Med/Arb. Barry is from the evaluative school of mediation and brings his over 30 years' experience as an employment lawyer and legal author to the dispute. In addition to his knowledge of the legal issues involved in these disputes, he also has a deep understanding of the psychological factors that motivate both employees and employers. By combining these two skills, Barry is able to achieve a settlement rate of over 80% of the disputes that he mediates.

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