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Termination clause update: New developments concerning benefit continuation and just cause language

We are not long into 2019 and yet one thing already seems clear – the law concerning employment contract termination clauses will continue to be the focus of a great deal of litigation in Ontario. In just the past few months alone, new decisions from the Superior Court have helped to advance the law and provide further guidance to employers on proper drafting of termination clauses.

Selective and conditional benefit continuation is illegal

A requirement of the Employment Standards Act, 2000 (“ESA”) is that upon dismissal from employment, an employee’s benefits must be continued for at least the minimal period of time specified by statute. This ranges from 1-8 weeks, depending on the length of the employee’s service.

Despite the ESA being quite clear with respect to the benefit continuation requirement, some employers adopt termination clauses that attempt to either cut out certain types of benefits immediately upon dismissal (most often short- and long-term disability) or make continuation of benefits conditional on the approval of a third party (i.e. an insurer). The conditionality requirement typically stems from the fact that many benefits insurers have historically been unwilling or uncooperative in providing coverage to employees past their termination date (and when their employment is no longer “active”).

The recent decision of Cormier v. 1772887 Ontario Limited c.o.b. as St. Joseph Communications, 2019 ONSC 587 addressed the consequence of these type of benefit drafting decisions head-on. Unfortunately for the employer, the Court had no time for its termination clause (which both limited benefits upon dismissal and imposed a conditionality requirement).

In reviewing the situation, Justice Perell noted:

The problem, however, for St. Joseph’s Communications is that while some aspects of the termination clause found in the 2012 employment contract were unobjectionable, the treatment of the employee’s benefits during the notice period were contrary to the Act. There was a fatal flaw, an Achilles’ heal so to speak, in the 2012 agreement making its termination clause void and unenforceable.

To be more precise, the termination clause in the 2012 employment contract purports to allow St. Joseph Communication upon termination to provide Ms. Cormier with only some of the employee benefits that she received before termination and even then, only subject to the consent of St. Joseph Communication’s insurers. With respect to the employee benefits, the termination clause therefore provides Ms Cormier with a lesser right than the rights set out in the Employment Standards Act, 2000 and therefore, the entire termination clause is void. [emphasis added]

Beware the distinction between “just cause” and “wilful misconduct”

In a late entry from December 2018, the Superior Court addressed another contractual subject of some debate: what is the proper way to define misconduct (i.e. cause) in order to justify denial of any termination payments to a dismissed employee?  

In the case of Khashaba v. Procom Consultants Group Ltd., 2018 ONSC 7617, at issue was a termination clause that had several different sub-paragraphs dealing with possible scenarios for contract termination (e.g. cause dismissal, without-cause dismissal and resignation). The cause paragraph contained the following language:

(b) Termination for Cause – Procom may, at its option, terminate your employment immediately for cause, without prior written notice or compensation of any nature. For these purposes, “cause” means any grounds at common law for which an employer is entitled to dismiss an employee summarily without notice or compensation in lieu of notice. [emphasis added]

Before the Court, the dismissed employee argued that the ESA has a different (and higher) standard for misconduct to justify disallowance of statutory termination payments (known as “wilful misconduct”) than that required by the common law to deny reasonable notice of dismissal (i.e. “just cause for dismissal”). Based on this variance, the employee pointed out that Procom’s contract could, in certain instances, allow for denial of statutorily required termination payments by utilizing the wrong standard (“just cause” vs. “wilful misconduct”) to assess whether any payments are owed upon dismissal.

When considering the issue, the Court agreed with the employee’s position:

Plester v. Polyone Canada Inc., 2011 ONSC 6068 (CanLII), aff’d 2013 ONCA 47 (CanLII), considered the difference between wilful misconduct and just cause at common law, concluding that wilful misconduct is a higher standard. Wilful misconduct involves an assessment of subjective intent, whereas just cause is a more objective standard. Wilful misconduct is colloquially described as “being bad on purpose.” Careless, thoughtless, heedless, or inadvertent conduct, no matter how serious, does not meet the ESA wilful misconduct standard. By contrast, common law just cause for dismissal may be found on the basis of prolonged incompetence, without any intentional misconduct. See also Cummings v. Quantum Automotive Group Inc., 2017 ONSC 1785 (CanLII) at para. 37.

[…]

I find that the “Termination for Cause” provision…is void. However, the remainder (the other four clauses) of the “Early Termination” provisions are still valid and enforceable. [emphasis added]

Note that last sentence. The Court struck down the cause termination provision but, as the without-cause language (which limited entitlement to the minimum notice provided for by the ESA) was contained in a separate paragraph and was drafted in a manner consistent with statutory requirements, it was left to stand. The result was a heart-breaking one for the worker – he had won the cause termination clause battle but lost the dismissal war, as his ESA entitlements upon a without-cause dismissal amounted to zero.

Lessons learned

If there is a lesson to be taken from decisions like Cormier and Khashaba it is that all employers should regularly have their employment contracts reviewed by legal counsel. The process need not be long or expensive. Yet the reality is that the law with respect to employment contract drafting continues to rapidly evolve and the costs of an error can be grave. Even small holes, such as those related to the definition of cause, can be fatal. This is one area where an ounce of prevention is worth a pound of cure.

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Vey Willetts LLP

Employment and labour lawyers at Vey Willetts
Vey Willetts LLP is an Ottawa-based workplace law firm, serving individuals and employers across Eastern Ontario. They recognize that operating a business is complex and maintaining an efficient and legally-compliant workplace is a continuous challenge. The firm helps simplify legal workplace obligations so that employers can focus on what matters: their business. Learn more about Vey Willetts LLP by contacting Andrew Vey, or Paul Willetts or by visiting the firm’s website. Read more.
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