CCP has blogged on numerous cases in the last few years where judges have struck down termination clauses in employment agreements for failing to meet the minimum obligations set out in the Employment Standards Act, 2000 ("ESA"). The recent appeal decision of the Ontario Superior Court of Justice in Rutledge v. Canaan Construction Inc. poses a particular concern for construction industry employers.
In this case, the appeal court was tasked with interpreting the following termination clause:
"The Employee may be terminated at any time without cause upon being given the minimum periods of notice as set out in the Employment Standards Act, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation. The Employee acknowledges that pursuant to the Employment Standards Act they are not entitled to any notice or time in lieu thereof due to the nature of their job and as such they are entitle to absolutely no notice or pay and benefits in lieu thereof upon termination.
The termination provisions set force above, represent all severance pay entitlement, notice of termination or termination in lieu thereof, salary, bonuses, vacation pay and other remuneration and benefits payable or otherwise provided to the Employee in relation to the termination of the Employee regardless of cause or circumstances."
For our readers who may be unfamiliar with the construction industry, "construction employees" are not entitled to notice of termination or pay in lieu of notice pursuant to Section 2(1)9 of Regulation 288/01 under the ESA. Constructions employees are not, however, disentitled from statutory severance pay.
The court found that the termination clause at issue was deficient on two grounds.
First, and most concerning, the court held that while the employee was a construction employee at the time he entered into the contract, it did not explicitly state that it would only apply so long as he continued to be employed as a construction employee and that it would be of no force or effect if his position changed. Accordingly, as an employee cannot contract out of a protected employment standard under the ESA, even if that particular standard does not yet apply to them, if a provision of an employment contract potentially violates the ESA at any date after hiring it is invalid.
Second, the court noted that although construction employees may not be entitled to the employment standards governing the termination of employment or notice thereof, they are still entitled to statutory severance pay. By failing to provide for this entitlement, the termination provision was again found to be unenforceable as a result of a potential violation of the ESA.
This decision is a good reminder to construction industry employers to review their employment agreements as even a potential violation of the ESA may be sufficient to render a termination clause unenforceable.
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