ARTICLE
21 March 2024

Another Termination Clause Bites The Dust

SL
Spring Law

Contributor

Spring Law
Employers have another reason to worry about their termination clauses.
Canada Employment and HR
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Employers have another reason to worry about their termination clauses.

Following the case of Waksdale v Swegon North America Inc., 2020 ONCA 391, Ontario courts have placed increased scrutiny on termination clauses with very few surviving.

Recently, the Ontario court found a new reason to void a termination clause in Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029 ("Dufault").

In Dufault, the Court voided the termination clause for three reasons (and of course, only one reason is enough):

  1. Expanding "With Cause" Definition:The provision referred to termination without notice "for cause", which is a different and lower standard than "wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer", which is the standard required to terminate employment without providing the notice (and potentially severance) required by the Ontario Employment Standards Act, 2000 ("ESA");
  2. Narrowing "Regular Wages" Definition: The without cause provision referred to pay in lieu of notice using base salary only whereas "wages" under the ESA is defined more broadly and includes additional forms of compensation such as commissions and vacation pay; and
  3. Expanding Employer Discretion to Terminate: The provision stated that the employer, in its "sole discretion", could terminate employment at "any time". The Court took issue with this language since the ESA prohibits an employer from terminating employment at the end of protected leave under the ESA or in reprisal for an employee's attempt to exercise a right under the ESA.

Although the first two grounds for voiding the termination provision are not new, the third ground is novel and will likely void many existing termination provisions.

Why does this case matter?

This is yet another case in which the courts set aside a termination clause and substitute in a common law amount of termination pay, which will almost always be higher.

Previously we wrote that the "one month per year of service" rule of thumb has become inaccurate for both short-service and long-service employees who can receive more than that now out-dated measure.

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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