A win for employers: the Baker and Li appeal

Lee Workplace Law's principal lawyer, Tina Lee, recently gave a talk on the enforceability of termination provisions. For those who didn't have the benefit of joining, the discussion focused on an exciting new Ontario Court of Appeal decision released this summer, which was a significant "win" for employers.

As some may know, over the last decade, there has been considerable flux in the law relating to termination provisions in employment contracts, especially here in Ontario. We saw an increasing trend of court decisions rendering termination provisions invalid for various defects in drafting.

Most recently, a contentious issue was whether including language such as "at any time" or "for any reason" in a termination provision was unlawful, on the basis it could potentially permit employers to terminate at times or for reasons not permitted by Ontario's Employment Standards Act the ("ESA"). In the space of a year, we had two seemingly conflicting lower court decisions on the issue: (i) in the case of Baker v. Van Dolder's Home Team Inc., the "at any time" language was found to be unenforceable and the termination provision struck down; and (ii) in the case of Li v. Wayfair Canada ULC, the "at any time and for any reason" language was found to be fine, and the termination clause upheld.

As a welcome relief for HR and employment law practitioners, the Ontario Court of Appeal heard a dual appeal of those two cases and released their decision this summer. The Court of Appeal's decision was significant, and we have summarized below some of the key takeaways.

1. Contracts must be read as a whole: Employment contracts must be read as a whole, with the application of a modern, practical, common-sense approach. While the remedial purpose of the ESA and the power imbalance between employers and employees should be considered, a technical or over legalistic approach should not be applied.
2. No artificial ambiguity: Like the first point, rather than trying to nitpick at certain words to render the clause ambiguous (and thus invalid), the clause will only truly be ambiguous where there are more than 2 or more reasonable but differing interpretations when reading the contract as a whole. No words should be read in isolation or nitpicked at just to create ambiguity as a basis for asking for common law reasonable notice.
3. "At any time" language not automatically void: The Court of Appeal found that the "at any time" language in both contracts did not show an intention to allow termination under ESA-prohibited circumstances, especially noting that the clauses included language that specified the employers' intention to comply with the ESA.
4. "For any reason" language not automatically void: Similarly, the Court of Appeal found that employer's intention for using such language was to indicate that it did not need to provide a reason for a without cause termination so long as the statutory entitlements are provided. Again, the Court did not view the language as an attempt to be offside the ESA, especially given there was language that signaled intention to comply.
5. "Wilful misconduct" definition not strictly necessary: We've previously written about the distinction between the common law concept of "cause" and the ESA standard of wilful misconduct (Confused? Read more here). In this appeal, the Ontario Court of Appeal found the fact that the "for cause" provision did not explicitly include the details and explanation of ESA wilful misconduct was not fatal, as the provision was clear and unambiguous that the employee would in all cases receive his minimum ESA entitlements.
6. Waksdale still good law: An important 2020 decision from the Ontario Court of Appeal, Waksdale v. Swegon North America Inc., held that if any aspect or part of a termination provision is void, it will render all the termination provisions in a contract void. In this appeal, the Court was asked, but refused, to reconsider Waksdale. Thus, Waksdale remains good law, and it remains important to ensure that all aspects of a termination provision(s) comply with statutory requirements.

Applying those principles to the Baker and Li cases, the Court of Appeal found the termination provisions enforceable in both cases.

Takeaways:

This Court of Appeal decision provided some much-needed clarity on the general approach to interpreting termination provisions, as well as the specific issue of whether the language "at any time" or "for any reason" will automatically render termination provisions void (it won't).

That said, for termination provisions to be enforceable, they still must be clear, unambiguous and onside statutory requirements. It remains critical for employers to ensure they're periodically reviewing employment contracts with legal counsel for clarity and enforceability. For employees, we strongly encourage you to seek legal advice before signing your contract and/or if negotiating for severance, so you understand how the contractual provisions might impact on your legal rights.

The team at Lee Workplace Law would be happy to help.