THE EMPLOYERS' EDGE
NEW HOPE FOR TERMINATION CLAUSES IN RECENT ONTARIO DECISION DISTINGUISHING WAKSDALE
In a recent decision of the Ontario Superior Court of Justice in Rahman v Cannon Design Architecture Inc., 2021 ONSC 5961, the Court distinguished one of the most hotly-debated recent cases – the Ontario Court of Appeal’s decision in Waksdale v Swegon North America – finding that a provision of the employment agreement which denied entitlements upon termination for just cause did not amount to an attempt to contract out of the Employment Standards Act, 2000 (ESA). This finding was based upon the employer and employee having equal bargaining power in negotiating the employment agreement and sharing a mutual intention not to contract out of the ESA.
Facts of the Case
The Offer and Employment Agreement
The plaintiff was hired by the defendant on February 16, 2016. Her hiring was preceded by a period of interviewing and negotiations. The offer letter provided to the plaintiff provided for payments not less than the “advance notice and/or applicable payments, benefits continuation, and severance pay if applicable, equivalent to the minimum applicable entitlements contained within the Ontario Employment Standards Act, 2000, as amended, or any applicable successor legislation”. This latter point is repeated in the next sentence in the offer letter which provides “[f]or greater certainty, Cannon Design's maximum liability to you for common law notice, termination pay, benefits continuation, severance pay, or payment in lieu of notice shall be limited to the greater of the notice required in your Officer's Agreement or the minimum amounts specified in the ESA”.
The plaintiff was urged to seek independent legal advice to consider the terms of the offer of employment made to her and she followed that advice. Her lawyer drafted a letter to the defendant on February 8, 2016, raising particular issues regarding the termination language of the proposed employment agreement. This letter resulted in material improvements to the proposed terms of employment in regards to severance within the first five years. Among other things, the lawyer’s letter contained a summary of the termination entitlements under the ESA and a caution that the ESA provisions represent a statutory minimum that the parties can neither contract out of nor waive. The lawyer’s letter raised no concerns regarding the just cause termination language contained in the offer letter.
Termination of Employment
The plaintiff’s employment was terminated without cause on April 30, 2020. She was employed by Cannon Design Architecture as a “Principal”, earning $185,000 annually plus benefits and eligibility in a discretionary bonus plan. The plaintiff was employed for just over four (4) years, and she was 61 years old at the time of her dismissal.
The plaintiff took the position that the termination provisions of her written employment agreement were void because they allegedly violated the minimum standards of the ESA. The allegation was that the “just cause” provision allegedly permitted termination without notice in circumstances beyond those permitted by the ESA. If this was indeed the case, according to the Ontario Court of Appeal in Waksdale, that would serve to invalidate the “without cause” termination provisions as well.
Decision of the ONSC
Issue to be decided
The central issue in this case was whether the termination provisions in the employment agreement were valid. Without valid termination provisions, the period of reasonable notice due to the plaintiff would be calculated using the common law test which would likely be significantly higher than the entitlements provided in her employment agreement.
The plaintiff argued that the termination provision in her employment agreement was unenforceable for five reasons:
- The “just cause” termination provision permitted termination without notice in circumstances beyond those permitted by the ESA;
- The negotiated termination provision only required her base salary to be continued over the notice period;
- The Officer’s Agreement was silent on severance;
- There were insufficient notice provisions in future, and;
- The employment contract stripped the plaintiff of her bonus entitlement even if it was fully earned.
Justice Dunphy of the Superior Court rejected arguments 2 through 5 citing both the plain wording of the termination clause and the equal bargaining power between the parties at the time the final employment agreement was entered into.
With respect to the first argument about the “just cause” portion of the employment agreement, Justice Dunphy found (at paragraph 26) that there was “no basis to apply a strict or even adverse construction approach to the termination provisions of this employment contract in the context of this case where:
- the termination provisions were the object of specific negotiation with the benefit of time and independent legal advice between reasonably sophisticated parties with neither compulsion nor marked disparity in bargaining power;
- the negotiations resulted in material improvements for the benefit of the prospective employee in excess of ESA minima; and
- the offer letter contains an explicit “for greater certainty clause” recognizing that the employer’s “maximum liability … for common law notice, termination pay, benefits continuation, severance pay, or payment in lieu of notice” shall be limited to the greater of the notice required in the Officer’s Agreement or the minimum amounts specified in the ESA.”
With respect to the parties’ mutual intent to comply with the ESA, Justice Dunphy stated:
[29] There is no basis in this case to imply into the general phrase “just cause for summary dismissal” a standard below the ESA standard of willful misconduct absent any evidence that such represents a reasonable construction of the intention of the parties in the context of the employment agreement in question. There is no evidence of any policy or practice of Cannon Design authorizing summary dismissal of employees for cause in circumstances beyond the limited circumstances enumerated in the ESA and its regulations….
[30] There is no basis for me to infer in this contract an intention to characterize non-willful misconduct as amounting to “just cause for summary dismissal” and I cannot in fairness do so. If none of the parties to the contract at its inception – having turned their minds to the very subject of ESA minimum standards applicable on termination and their priority – took objection to the general “just cause for summary dismissal” language used it would be entirely illogical to infer nevertheless an intent to contract out of well-known and long-standing minimum standards in the jurisdiction in which they were operating. The language employed in no way requires such an illogical interpretation and there is no evidence of an existing non-conforming policy.
[31] The offer letter, properly and fairly construed in its true context, does not violate the minimum standards of the ESA in the case of “just cause for summary dismissal”. The ESA mandates no such result nor does a fair and reasonable construction of the agreement.
Implications for Employers
This is a welcome decision to employers but should be relied on with caution. While this decision does provide some support for employers hoping that their existing termination provisions are valid, it does not serve to overturn the Court of Appeal’s decision in Waksdale. What this decision does, is allow employers to rely on evidence from the negotiation of employment agreements for support that there was no intention to contract out of ESA minimums.
The enforceability of any termination provision will ultimately depend on the specific wording of that clause and the context in which it was created. This is perhaps an added lesson that employers should retain in personnel files all communications leading up to the formation of any employment agreement.
Contact the experienced lawyers at CCPartners for assistance in drafting employment agreements or advice regarding pending or possible litigation of employment issues, including termination.