Ontario Court Finds Termination Clause Invalid, Employee Receives $150K in Damages
Ontario employers, including charities and not-for-profits, may need to update their employment contracts again to ensure the language in termination clauses complies in exacting detail with provincial minimum employment standards legislation. In Dufault v The Corporation of the Township of Ignace, a wrongful dismissal decision published February 16, 2024, the Ontario Superior Court (the "Court") struck down the termination clause in the fixed-term contract (the "Contract") between the plaintiff, Karen Dufault (the "Employee"), and the defendant, the Township of Ignace (the "Employer"). The Court found that certain language in both the "for cause" and "without cause" sections of the Contract's termination clause contravened parts of the Employment Standards Act, 2000 (ESA) and therefore the entire termination clause was deemed not enforceable. That left the Employee with damages for the whole remainder of the Contract term: 101 weeks' salary and benefits, for a total award of $157,071.57.
The Employee was hired in October 2021 as a Youth Engagement Coordinator, which continued for over a year until November 2022, when the Employee signed a fixed-term employment contract with the Employer, with an end date on December 31, 2024. The Employer terminated the Contract early on a "without cause basis" in January 2023, and paid the Employee $2,884.61 plus some benefits for two weeks' compensation. At the time of termination, the Employee was earning a base annual salary of $75,000 plus benefits. Facing a summary judgment for wrongful dismissal, the Employer argued the Contract was clear and they had met their legal obligations by paying the minimum of two weeks' salary in lieu of notice as required under the ESA. The Court did not agree.
The Contract was found to contravene the ESA in three respects, according to the Court. Firstly, the use of "for cause" in the Contract "conflates grounds for dismissal under the ESA with a common law standard that does not appear in the ESA." The statutory test for termination without notice is a higher threshold and involves "wilful misconduct" as stated in an ESA regulation (O Reg 288/01), the Court noted. "For cause" or other language that expands the scope of dismissal beyond what is stated in the ESA fails to meet the test and does not justify termination without notice. Secondly, the "without cause" section of the Contract's termination clause differed from the ESA by providing payment of the Employee's "base salary" for the notice period, whereas the ESA provides all "regular wages" without any reduction, or a lump sum payment in lieu of notice, which includes commissions. In this case the Court also included vacation pay and paid sick days as part of "regular wages" identified in the Contract. Thirdly, the Contract stated that the Employer had "sole discretion" to terminate the Employee's employment "at any time." That language is incorrect, the Court found, because the ESA requires employment to be reinstated after a job-protected leave of absence, and does not allow termination "in reprisal for attempting to exercise a right" under the ESA. As a result of these contraventions, the Court held the termination clause was unenforceable. Since the Contract was on a fixed term, and there was no valid clause for early termination, the Employer owed the Employee the rest of her salary as if she had completed all of her work until the end date.
Jurisprudence in Ontario "has demanded stricter standards to achieve compliance with the ESA" since 2015, the Court stated, citing precedent case law. The Dufault decision is the latest in a line of recent cases since Waksdale v Swegon North America Inc. that has made it significantly more difficult for employers in Ontario to terminate employees, with or without cause, while paying out termination amounts limited to the minimum standards required by the ESA. Unless employers can draft termination clauses that are precise and wholly compliant with provisions of the ESA to the satisfaction of judges, a challenging and uncertain endeavour, they may be required to follow common law notice periods — far lengthier, and much more expensive, than the minimums provided under the ESA. It remains to be seen how further judgments will follow this trend — or reverse it — and whether, or how, the Ontario legislature will respond.
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