Over the years, we have reported on the enforceability of termination clauses (or lack thereof in most cases). Just when we thought all possible arguments had been exhausted and considered by the courts, the superior court surprised us with yet another new ground to render termination clauses unenforceable.
In the matter of Dufault v The Corporation of the Township of Ignace 2024 ONSC 1029 ("Dufault"), the Court considered several arguments (most of which are debated and considered regularly) with respect to the enforceability of a termination clause within a fixed-term employment agreement but a novel argument presented itself amidst the usual ones.
The plaintiff argued (among other things) that the termination clause in her agreement was unenforceable because it gave the employer "sole discretion" to terminate her employment "at any time", which is very common wording in employment agreements. The plaintiff argued that the termination clause misstated the ESA when it purported to have "sole discretion" to terminate the plaintiff's employment "at any time", when the ESA prohibits the employer from doing so in certain circumstances.
The court accepted the argument, and took issue with the words "sole discretion" and "at any time" in the employment agreement and determined that:
"[46] Thirdly, the plaintiff submits that Article 4.02 misstates the ESA when it gives the employer "sole discretion" to terminate the employee's employment at any time. I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee's leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute."
The result was a finding that the termination clause was not enforceable. Given that most employment agreements contain the same or similar wording, this decision will likely have a significant impact on employers and employees alike as the often-used words "sole discretion" and "at any time" might render the clauses unenforceable, which means the common law will apply. If this case is followed, its reasoning will sound the death knell of many termination clauses in Ontario.
What does this mean for employers?
Termination provisions within existing employment agreements may now be unenforceable based on Dufault. Employers should promptly reach out to their employment counsel for review of their current employment agreements.
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