"Saving" clauses fail to save illegal termination provisions

In recent years, the Ontario courts have taken a stringent approach to interpreting termination provisions in employment agreements. Notably, the Court of Appeal in Waksdale v. Swegon North America Inc., 2020 ONCA 391[1] held that employers must draft termination provisions that comply with the minimum statutory requirements set out in the Ontario Employment Standards Act ("ESA") or risk all of the termination provisions being void.

In a number of new decisions, the Ontario courts considered whether saving language in an employment agreement can prevent termination provisions that would otherwise violate the ESA from being void. In each case, the court concluded the answer was no. The court emphasized that if any part of a termination provision violates the ESA the termination provision will be void. This may be the case even if there is saving language or a "failsafe" clause.

(1) Perretta v. Rand A Technology Corporation, 2021 ONSC 2111

In this case, the key issue was whether the termination provisions contained in the employment agreement were enforceable to limit the dismissed employee's entitlement to common law reasonable notice.

The court held they were not. Firstly, the court found the employer had repudiated the employment agreement by failing to provide the employee with her contractual entitlements on termination, and thus could not rely on the termination provisions. Nevertheless, the court still considered whether the termination provisions in the employment agreement would have been enforceable had the contract not been repudiated.

The termination for cause provision provided as follows:

"Termination With Cause - We may terminate your employment for just cause at any time without notice, pay in lieu of notice, severance pay, or other liability, subject to the ESA. For the purposes of this Agreement, "just cause" means just cause as that term is understood under the common law and includes, but is not limited to: [list of Eleven Categories of Just Cause]"

A number of the listed categories of "just cause" fell below the level of wilful misconduct, which is the ESA threshold for termination without notice. As a result, the employee argued the provision was void for violating the ESA.

For its part, the employer argued the inclusion of the words "subject to the ESA" prevented the termination provision from being void for violating the ESA. It also relied on a "general" provision in the employment agreement which stated "if any provision of this Agreement provides a right or benefit that is less than the corresponding minimum right or benefit under the ESA that provision will be deemed to provide the corresponding minimum right or benefit under the ESA."

The court concluded the saving language and "general" provision were not sufficient to prevent the termination with cause, and thus all of the termination provisions, from being void. It noted that while it may be possible to struggle and find a way to read the termination with cause provision in a manner that was consistent with the ESA, the provision was ambiguous. The ambiguity must be resolved in favour of the employee by finding the provision contravened the ESA and was invalid.

(2) Livshin v. The Clinic Network Canada Inc., 2021 ONSC 6796

In this case, the dismissed employee argued that the termination for cause provision in his employment agreement was void for violating the ESA, and as such invalidated the other components of the termination provision, including the without cause clause. He claimed he was entitled to damages in lieu of payment to the end of his fixed-term contract.

The termination for cause provision read as follows:

"Termination by the Company for Just Cause - The Company has the right, at any time and without notice, to terminate your employment under this Agreement for just cause."

The employer submitted that because the termination for cause provision only stated the employee would not receive "notice", and did not purport to withhold "termination pay", the provision did not eliminate the employee's entitlement to termination pay in the event his conduct did not amount to wilful misconduct. Therefore, it did not violate the ESA. The employer also tried to rely on a "failsafe" provision which stipulated that any finding that a provision in the employment agreement was not enforceable would not affect any other provision.

The court rejected both arguments. It held the technical argument regarding the interpretation of the word "notice" did not overcome the key concern that the provision should clearly comply with the ESA, noting it was open to the employer to include clear and specific language that complied with the ESA. It then went on to find that since the termination provision as a whole was void, the failsafe provision was of no assistance to the employer.

(3) Campbell-Givons v. Humber River Hospital, 2021 ONSC 6317

The key issue in this case was also whether the dismissed employee was entitled to common law reasonable notice notwithstanding the terms of his employment agreement.

The termination for cause portion of the termination provision listed non-exhaustive scenarios as examples of circumstances in which the employer would not provide termination pay or severance to the employee, and included at least four scenarios that did not reach the statutory threshold of wilful misconduct. The termination provision subsequently included a statement that: "At all times the Employee will receive all employment standards entitlements owing to her in accordance with the Ontario Employment Standards Act, 2000."

The employer argued that the "clarifying language" confirmed that the employee would always and inevitably receive her ESA entitlements, and thus the termination provision as whole complied with the ESA, despite the wording of the termination for cause portion.

The court rejected that argument. It held that if there is any provision within a termination provision that violates the ESA, the termination provision is unenforceable. This is the case whether or not there is saving or "clarifying" language that acknowledges a possible breach. As such, the "clarifying language", coupled as it was with a termination provision that breached the ESA, did not render the offending provision acceptable.

Outcomes:

In each of the cases the termination provisions were not enforceable, and the employees were entitled to damages based on their more generous common law entitlements.

Takeaways:

These decisions reinforce that the Ontario courts are taking a strict approach to interpreting termination provisions. While it remains open to employers to including termination provisions that limit an employee's common law entitlements on termination, these provisions must clearly comply with the ESA. If they do not, they are at risk of being invalidated.

Employers should regularly and critically review their employment agreements to ensure they are clear and comply with the ESA. Employers are encouraged to seek legal assistance when reviewing their employment agreements.

On the flipside, employees may have greater rights on termination than they realize. Employees should seek legal advice before entering into any employment agreement or accepting a termination or severance package.

Lee Workplace Law would be happy to help with your workplace matters.

[1] For more information on the decision in Waksdale, please see our blog post Termination Provisions - A Legal Update 2.