In Ontario, employers are required to provide employees with reasonable advance notice of their dismissal (or payment in lieu thereof). This requirement applies unless the parties have agreed in writing for the employer to provide an alternate lawful entitlement. To qualify as an alternate lawful entitlement, the language must comply in all circumstances with the minimum requirements of the Employment Standards Act, 2000 (the “ESA”).
Where contractual language fails to meet this requirement, it is inoperative to displace the presumption that an employee will receive reasonable notice of dismissal.
Considerations of “experience and sophistication”
Last year, the Ontario Superior Court of Justice departed from the above-stated principle. In Rahman v. Cannon Design Architecture Inc. (“Cannon”), a dismissed employee sought damages for wrongful dismissal on the basis that the termination provision in her employment agreement failed to comply in all circumstances with the ESA and, as such, she had a right to reasonable notice.
The court rejected the plaintiff’s argument. It found that the termination provision was lawful, and thus dispositive of the plaintiff’s entitlements upon termination. In reaching this conclusion, the court relied in large part on its perception of the plaintiff as a “woman of experience and sophistication.”
Essentially, the court refused to invalidate the termination provision because:
- it considered the plaintiff to be a sophisticated party who received independent legal advice prior to signing the contract; and
- there was evidence that the parties’ subjective intention had been to comply with the ESA.
Shortly after its release of the Cannon decision, the Superior Court had opportunity in Campbell-Givons v. Humber River Hospital (“Campbell”)to revisit whether an employee’s sophistication should affect the enforceability of a contractual termination provision.
In rejecting the logic applied in Cannon, the court found that:
It is also problematic, in my opinion, to engage in a detailed analysis about the level of sophistication of an employee and whether or not they had time and opportunity to obtain legal advice. A termination clause cannot comply with the ESA for some employees but violate the ESA for others. It either violates the ESA or does not, and it is either enforceable or not. It is a straightforward matter for an employer to incorporate clauses in an employment agreement that comply with ESA standards, and when that is not done the court should not be asked to rewrite the language of the termination provisions to achieve compliance.
Overturned on appeal
The plaintiff in Cannon appealed from the court’s ruling on the basis that the termination provision breached the ESA and was thus inoperative to govern her entitlements upon dismissal. The Court of Appeal for Ontario accepted this argument and overturned the decision.
In so doing, the Court of Appeal found that it had been an error in law to consider the plaintiff’s sophistication when assessing enforceability:
In my view, the motion judge erred in law when he allowed considerations of Ms. Rahman’s sophistication and access to independent legal advice, coupled with the parties’ subjective intention to not contravene the ESA, to override the plain language in the termination provisions in the Employment Contracts. By allowing subjective considerations to distort and override the wording of those provisions, the motion judge committed an extricable error of law…It is the wording of a termination provision which determines whether it contravenes the ESA…
Lessons for employers
Severance obligations can be substantial. Employers are, however, able to control and manage this potential liability by addressing it clearly and lawfully in a written agreement with their employees.
As such, employers should invest time and effort to ensure they have in place lawful written agreements which, amongst other things, clearly state an employee’s entitlements upon dismissal.
The recent decisions in Cannon and Campbell serve as a reminder that the wording of a contractual provision must comply with the ESA in all circumstances or be found unenforceable: language alone is determinative. The courts will not allow considerations of an employee’s alleged sophistication, or the parties’ subjective intent, to override the express wording of the contract.
In our view, this approach makes sense: compliance with the ESA is not optional. Allowing the courts to wade into assessments of perceived sophistication, on the other hand, will result in a two-tier system, with individuals denied their basic employment rights on inherently subjective grounds.
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