TERMINATION TANGO: The legal dance of enforceable termination provisions in Ontario
The enforceability of termination clauses in employment contracts is often what lies at the heart of employment litigation. The law was reviewed in the case of Dufault v. The Corporation of the Township of Ignace. In this instance, the Ontario Superior Court of Justice made some critical considerations regarding termination clauses.
The Plaintiff, Karen Dufault sought summary judgment for wrongful dismissal and damages following her termination as the Youth Engagement Coordinator by the Defendant, the Corporation of the Township of Ignace. A fixed-term employment agreement ending on December 31, 2024, was agreed upon and signed by both parties on November 24, 2022. On January 26, 2023, the defendant terminated the plaintiff’s employment effective immediately without cause.
Changes made
This case revolved mainly around the enforceability of the termination clauses outlined in the plaintiff’s employment contract as shown below. The court deemed these clauses unenforceable due to several violations of the Employment Standards Act (ESA):
“The Township may terminate this Agreement and terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee’s employment is terminated with cause, no further payments of any nature, including but not limited to, damages are payable to the Employee, except as otherwise specifically provided for herein and the Township’s obligations under this agreement shall cease at that time. For the purposes of this Agreement, “cause” shall include but is not limited to the following:
(i) upon the failure of the Employee to perform the services as hereinbefore specified without written approval of Municipal Council and such failure shall be considered cause and this Agreement and the Employee’s employment terminates immediately;
(ii) in the event of acts of willful negligence or disobedience by the Employee not condoned by the Township or resulting in injury or damages to the Township, such acts shall be considered cause and this Agreement and the Employee’s employment terminates immediately without further notice.
The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows:
(i) the Township will continue to pay the Employee’s base salary for a period of two (2) weeks per full year of service to a maximum payment of four (4) months or the period required by the Employment Standards Act, 2000 whichever is greater. This payment in lieu of notice will be made from the date of termination, payable in bi-weekly installments on the normal payroll day or on a lump sum basis at the discretion of the Township, subject at all times to the provisions of the Employment Standards Act, 2000.
(ii) with the exception of short-term and long-term disability benefits, the Township will continue the Employee’s employment benefits throughout the notice period in which the Township continues to pay the Employee’s salary. The Township will continue the Employee’s short-term and long-term disability benefits during the period required by the Employment Standards Act, 2000 and will pay all other required accrued benefits or payments required by that Act.
(iii) all payments provided under this paragraph will be subject to all deductions required under the Township’s policies and by-laws.
(iv) any further entitlements to salary continuation terminate immediately upon the death of the Employee.
(v) such payment and benefits contributions will be calculated on the basis of the Employee’s salary and benefits at the time of their termination.”
The court highlighted the following reasons why these termination provisions were invalid:
- The “for cause” termination clause expanded grounds beyond those outlined in the ESA, therefore violating minimum standards;
The Court confirmed that neither the ESA, nor its regulations refer to a “for cause” dismissal. The Court also addressed the question of conduct stating that the termination clause of the contract had expansive language, thus enlarging the criteria for dismissal without notice, contrary to the grounds outlined in the ESA.
- The “without cause” provision of the employment contract failed to account for accrued benefits like vacation pay on termination, or to mention sick days provided in the contract, contrary to ESA regulations;
The Court refers to s. 60 of the ESA to confirm that wages are not to be reduced during the notice period when the employee is entitled to receive all “regular wages”. Furthermore, s. 61 of the ESA requires an employer to pay a lump sum equal to the amount that would have been paid if a working notice of termination had been given pursuant to s. 60.
The Court opined that vacation pay is indeed part of “regular wages”, thus stating that article 4.02 of the employment contract failed to mention vacation pay on termination. Furthermore, the contract also failed to refer to sick days provided as well as to mention the compensation for the annual five days of paid leave.
- The “without cause” provision clashed with ESA provisions that protect employees from unfair dismissals by giving the employer “sole discretion” to terminate the employee’s employment “at any time”.
The Court, whilst in agreement with the plaintiff’s submission, reminds us that the ESA states in s. 53 that it is prohibited for the employer to terminate an employee on the conclusion of an employee’s leave. In s. 74 of the ESA, the employer is also prohibited from terminating an employee in reprisal for attempting to exercise a right under the Act. Therefore, the right of the employer to dismiss is not one that is absolute. An employer cannot terminate the employee’s employment at “any time”.
The Court concluded that the termination clauses in the employment contract did indeed contravene with the ESA therefore deeming these provisions unenforceable.
What does this mean for employment contracts moving forward?
Employment contracts play a pivotal role in defining the rights and obligations of both employers and employees. This case serves as a reminder that termination clauses need to be in strict compliance with statutory standards.
We strongly suggest that employers have their employment contracts reviewed regularly to ensure that they are in compliance with the statutory standards and new case law.
