The Ontario Superior Court of Justice recently released its decision in 2024 ONSC 1029. The decision serves as yet another reminder for employers to regularly review their employment contracts to ensure compliance with the Employment Standards Act (the “ESA”).
Background
The employee commenced a wrongful dismissal action against her former employer. The court was tasked with determining the validity of the termination clause contained in the employee’s fixed-term contract.
Legal findings
Justice Pierce made three distinct findings to deem the termination clause invalid:
- The termination “for cause” provision allowed the employer to terminate the employee’s employment without paying their minimum statutory entitlements using a common law “for cause” standard that did not appear in the ESA or its regulations. This invalidated the clause given the expansive nature of the term “for cause” in comparison to the more stringent ESA standard required to withhold statutory payments.
- The termination clause violated the ESA as it provided for payment equivalent to her “base” salary over the notice period. This violated the ESA as employees are entitled to their regular wages during the notice period, including commissions and vacation pay, and not just their base salary as the termination clause improperly stated.
The more significant impact to employment contracts
The above two findings were anticipated or already well-known assessments of the ESA. However, Justice Pierce’s third finding provides a new reason to invalidate future termination clauses:
- Like many employment contracts, the employee’s termination clause contained language that the employer could, “at any time” and in its “sole discretion” terminate her employment. Justice Pierce found this to be a violation of sections 53 and 74 of the ESA as these sections prohibit employers from terminating employees on the conclusion of a leave and in reprisal for attempting to exercise a right under the ESA.
There has been significant discussion regarding Justice Pierce’s finding on this argument due to the fact that section 53(2) of the ESA allows for an employer to terminate an employee after a leave as long as the termination is for reasons solely unrelated to the leave.
Justice Pierce’s decision is not currently binding on other Superior Court judges until a higher court considers this issue. However, it is likely that employee counsel will attack similar language in employment contracts. Therefore, it is critical that employers have their standard employment contracts reviewed and updated in order to limit potential risk and litigation.
Long service notice periods above 24 months: Another reason to revisit your employment contracts
Coupled with the ever-changing landscape of termination clauses, we are seeing a revival of very lengthy notice-period awards. Although notice periods above 24 months are reserved for “exceptional” circumstances, recent cases such as 2023 ONCA 696 demonstrate that courts can and will award these longer notice periods.
In 2023 ONCA 696, the employee was an engineer with 39 years of experience and was dismissed by his employer without notice. The trial judge awarded the employee 30 months of notice. The decision was appealed, and the Court of Appeal for Ontario declined to interfere with the trial judge’s award thus upholding the 30-month notice period.
Ultimately, notice periods above the typical “24-month cap” continue to be awarded. It is therefore essential that employers have enforceable termination clauses that limit notice period entitlements upon termination as this could potentially result in a difference between paying an employee eight weeks’ pay in lieu of notice versus paying the employee 30 months’ pay in lieu of notice. If a current long-service employee does not have such a valid termination clause in their contract, a new employment contract can be negotiated in exchange for sufficiently valuable consideration.
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