Recent judgments have muddied the waters on the importance of considering the relative sophistication of employees in determining the enforceability of termination provisions in employment contracts. Employee sophistication had previously been considered in interpreting whether termination provisions were valid, on the premise that inherent in the employer-employee relationship is an imbalance of power. This consideration may not be as significant in light of recent developments in case law.
Three months ago, the Ontario Superior Court of Justice released its decision for Rahman v Cannon Design Architecture Inc. (Rahman), in which it upheld the termination provisions in an employment contract, despite those provisions violating the Employment Standards Act, 2000 (ESA). In rendering its decision, the Court pointed to the employee’s reasonable sophistication and her negotiation of the terms of her employment agreement, through her legal counsel, which led to “material improvements” to the terms of her entitlements on termination, concluding that there was clear mutual intent to comply with the minimum standards of the ESA.
Two more recent decisions – Livshin v The Clinic Network Canada Inc. (Livshin) and Campbell-Givons v Humber River Hospital (Campbell-Givons) – which call Rahman into question, have since been released.
In finding that the termination provisions in the employment contract in Livshin, which were negotiated in the context of a commercial transaction, were void, Justice Black stated that, “While Livshin may be more sophisticated than many employees, and notwithstanding that he was represented by counsel, I can see no reason why the clause at issue had to be drafted in a way that on its face contravenes the ESA. Further, in my view the goal that employers be encouraged to draft clauses that comply with the ESA trumps the suggestion that Livshin may have been better able than many or most employees to recognize the potential peril” (para 57).
Likewise, in Campbell-Givons, Justice Black reinforced that a termination provision cannot comply with the ESA for some employees and violate the ESA for others and emphasized that courts should not be requested to rewrite such provisions to ensure compliance with ESA standards.
Takeaways for employers
Given the contradictory rulings in Rahman and the later two cases mentioned above (and until these cases are appealed), employers should take care in drafting termination provisions in employment agreements to ensure that they are compliant with the ESA. Courts may be reluctant in engaging in analyses about the level of sophistication of an employee and an employee’s opportunity to obtain legal advice in determining the enforceability of termination provisions.