Canada: Not-So-Breaking News: You May Not Contract Out Of The Employment Standards Act, 2000

Last Updated: June 17 2019
Article by Liam Ledgerwood

In a previous blog, I discussed recent cases discussing the enforceability of termination clauses in employment agreements. In Ariss v. NORR Limited Architects & Engineers, 2019 ONCA 449, a Court of Appeal decision released on May 30, 2019, the Court confirmed that employees and employers may not contract out of the Employment Standards Act, 2000's (the "ESA") minimum standards, even if both parties voluntarily agree to the offending terms.

In Ariss, the employee worked at the same business for over 30 years. He was originally hired by DTM in 1986. DTM was sold to NORR in 2002. In June 2006, the employee requested to work 40 hours a week instead of his usual 35 hours a week and a corresponding salary bump. NORR and the employee came to an agreement – the employee was given a new longer workweek and a small raise, and in exchange, he signed a new agreement which, among other things, waived the employee's entitlement to common law reasonable notice and included a termination clause which stated:

"[NORR] will provide notice of termination in writing to the employee in accordance with the Ontario Employment Standards Act. The Employment Standards Act provides one week for every year of service to a maximum of 8 weeks."

Everything went smoothly until 2013, at which time the employee requested to switch from full-time status to part-time status. NORR told the employee that it would only agree to switch him to part-time status if he first resigned from his current position, expressly waived all his accrued length of service, and accepted new part-time employment with NORR. The employee agreed – he resigned, purported to waive his accrued length of service, and began part-time employment with NORR.

In 2016, NORR terminated the employee's employment. It paid him 3.5 weeks' termination pay (ESA minimums for an employee with 3.5 years' service), and did not provide him with severance pay because NORR took the position that his length of service was less than 5 years. The employee sued for wrongful dismissal, alleging that the purported resignation was contrary to the ESA and that he was entitled to common law reasonable notice.

At a summary judgment motion, the motions judge concluded, among other things, that the resignation was an illegal attempt to contract out of the ESA's provisions governing length of service. Specifically, it was an "an entirely artificial attempt to create an interruption in employment when in fact there was none". As such, the judge concluded that the employee's length of service for the purposes of the ESA was the full 30 + years.

However, the motions judge concluded that the termination clause was enforceable. While the employee argued that the change in his status from full-time to part-time in 2013 rendered the 2006 termination clause inapplicable, the motions judge disagreed. Rather, the change in his employment status in 2013 was an amendment to the existing terms of his employment, which included the 2006 termination clause.

As such, the motions judge concluded that the employee was entitled to his ESA minimum entitlements based on 30+ years' service – in this case, 8 weeks' termination pay, and 26 weeks' severance pay.

In the May 30, 2019 decision, the Court of Appeal upheld the motion judge's decision, dismissing both the employee's appeal and NORR's cross-appeal. In so doing, the Court considered briefly the employee's argument that the small raise given to him in 2006 was not "adequate" consideration to support the changes to the terms of his employment, including the new termination clause. It has long been a principle of contract law that courts should not weigh the adequacy of consideration, on the basis that we should leave the issue of whether a deal is "fair" to the parties to the deal. However, while the Court rejected the employee's argument, it notably did not unequivocally confirm that traditional position. Instead, it held that the small raise requested by the employee was adequate consideration in these circumstances.

Arguably, this decision leaves the door open to the argument that, in the right circumstances, courts can refuse to enforce changes to the terms of employment if the deal wasn't "fair" enough for one of the parties. That being said, the key takeaway from Ariss for employers is that you can't contract out of the ESA, even if your employee appears willing to do so.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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