Canada: Good News/Old News: Why Wood v Deeley Is Nothing (New) For Employers To Sweat

Last Updated: April 12 2017
Article by Paul Boshyk and Shahram Khalili, Student-at-Law

Much has been said about the impact of the Ontario Court of Appeal's decision in Wood v Fred Deeley Imports Ltd.1 since its release in February 2017. Some commentators have even hailed it as a major victory for dismissed employees. However, a sober second reading of the Court's decision suggests that the news may not be so bad for employers after all.

Background

Ms. Wood was dismissed from her employment with Fred Deeley Imports ("Deeley") on a without cause basis after eight years of service. In terminating Ms. Wood's employment, Deeley purported to rely on the following "all-inclusive" termination clause in her employment contract:

The Company is entitled to terminate your employment at any time without cause by providing you with 2 weeks' notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph [...] The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.

In fact, Deeley provided Ms. Wood with entitlements in excess of those set out in her contract, namely: 13 weeks' working notice plus a lump sum payment equal to eight weeks' pay. Nevertheless, Ms. Wood sued Deeley for wrongful dismissal on the grounds that (1) the contract was unenforceable because it was signed after she started working for Deeley, and (2) the termination clause was void because it contravened the Employment Standards Act, 2000 (the "ESA").

The "Good News" for Employers

Ms. Wood's first argument was based on the legal doctrine of consideration.

In employment law, the doctrine of consideration requires that an employer provide something new and of value to an employee (e.g., a bonus) if the employer wishes to obtain a new contract or term from an employee that negatively affects his or her interests (e.g., a termination clause). Where an employee has already started working for the employer, he or she can take the position that an unwritten contract has already been formed and that no "fresh" consideration was provided in exchange for the new contract or term. Absent fresh consideration, the new contract or term is likely unenforceable.

In this case, Ms. Wood was offered and accepted a job with Deeley during a phone call on April 17, 2007. A representative of Deeley then sent her an email outlining the terms of her employment (including the termination clause). Ms. Wood started working for Deeley on April 23, 2007. The following day, she met with a human resources representative and finally signed the contract. Therefore, Ms. Wood argued that the contract was unenforceable for lack of fresh consideration.

Surprisingly, the Court disagreed with Ms. Wood. According to the Court, a written contract is not unenforceable merely because the employee signs it after he or she starts work – provided that the material terms in the contract were part of the "original employment relationship" (e.g., the key terms were communicated prior to the commencement of employment). The fact that Ms. Wood signed the contract after she started working for Deeley was a matter of administrative convenience. As such, fresh consideration was not required.

The "Old News" for Employers

Ms. Wood's second argument was that even if the contract was enforceable, the termination clause in it was still void.

In particular, Ms. Wood argued that the termination clause improperly excluded Deeley's statutory obligation to make benefit contributions during the notice period (contrary to ss. 60 and 61 of the ESA) and pay severance pay (contrary to ss. 64 and 65 of the ESA). In its defence, Deeley argued that the word "pay" in the phrase "two weeks' notice of termination or pay in lieu thereof" was broad enough to include both wages and benefits. It also argued that the 21 weeks of combined notice and pay in lieu of notice actually provided to Ms. Wood exceeded her entitlements under the ESA.

The Court agreed with Ms. Wood that Deeley had improperly tried to contract out of the ESA.

According to the Court, the word "pay" was, at best, ambiguous. Adopting the interpretation most favourable to Ms. Wood, the Court concluded that "pay" referred only to wages, not to benefits. The termination clause was also deficient because Deeley had unwisely combined its separate obligations to give notice and pay severance pay. In the result, the clause permitted Deeley to discharge all of its statutory obligations to Ms. Wood by way of working notice. Under this scenario, Ms. Wood would have received more notice than she was entitled to under the ESA, but she would not have received any severance pay.

By reason of the foregoing, the Court held that the termination clause was void. The Court added that Deeley's actual compliance with the ESA did not cure the clause's deficiencies because "illegal" termination clauses cannot be remedied after the fact. Therefore, Deeley was ordered to pay damages equal to nine months of reasonable notice at common law.

What Employers Should Know

In the well-known cases of Wright v The Young and Rubicam Group of Companies2 and Stevens v Sifton Properties Ltd.,3 the Ontario Superior Court of Justice held that all-inclusive termination provisions that could result in an employee receiving less than his or her statutory entitlements notice, severance pay or benefits continuation are void and unenforceable. Wood v Fred Deeley Imports Ltd. effectively confirms these lower court decisions. It does not create new law.

Meanwhile, the Court's decision to uphold Ms. Wood's contract – notwithstanding the fact that it was signed after she started working for Deeley – is significant. Historically, the courts have struck down written contracts that were signed after the employee started working for the employer, even if the key terms were communicated prior to the commencement of employment. It is apparent that the Court in Wood v Fred Deeley Imports Ltd. favoured a more practical and business-minded approach.

That said, employers are still cautioned to ensure that employment contracts are signed by new hires before they start working. This "best practice" remains the most effective way to avoid disputes about whether or not employees received sufficient consideration for their new contracts.

Footnotes

1. 2017 ONCA 158.

2. 2011 ONSC 4720.

3. 2012 ONSC 5508.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2017

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Paul Boshyk
Shahram Khalili, Student-at-Law
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.