In Dufault v The Corporation of the Township of Ignace,1 the Ontario Court of Appeal reaffirmed the principle from Waksdale v Swegon North America Inc.,2 that the termination provisions in an employment contract must be read as a whole. If one provision fails to meet the minimum standards prescribed by the Employment Standards Act, 2000, SO 2000, c. 41 ("ESA"), it invalidates all termination provisions in the contract.
Lower Court Decision
On November 24, 2022, the Plaintiff, Ms. Dufault, and the Defendant, The Corporation of the Township of Ignace (the "Township"), signed a fixed-term employment agreement wherein it was agreed that Ms. Dufault's employment would continue until December 31, 2024. On January 26, 2023, Ms. Dufault was terminated without cause and provided two weeks' termination pay and continued benefits for two weeks. At the time of her dismissal, Ms. Dufault's compensation included an annual base salary of $75,000.00 plus benefits.
Ms. Dufault moved for summary judgment for wrongful dismissal and damages for the duration of the fixed-term contract. She argued that the termination provisions in her employment contract were illegal and unenforceable.
The motion judge accepted that the termination provisions were unenforceable. Addressing the "for cause" provision at Article 4.01 of Ms. Dufault's employment contract, the motion judge held that the provision was invalid because it conflated grounds for dismissal under the ESA with the lower common law standard of just cause dismissal. Article 4.01 reads as follows:
4.01 The Township may terminate this Agreement and terminate the Employee's employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee's employment is terminated with cause, no further payments of any nature, including but not limited to, damages are payable to the Employee, except as otherwise specifically provided for herein and the Township's obligations under this agreement shall cease at that time. For the purposes of this Agreement, "cause" shall include but is not limited to the following:
- upon the failure of the Employee to perform the services as
hereinbefore specified without written approval of the Municipal
Council and such failure shall be considered cause and this
Agreement and the Employee's employment terminates
immediately;
- in the event of acts of willful negligence or disobedience by the Employee not condoned by the Township or resulting in injury or damages to the Township, such acts shall be considered cause, and this Agreement and the Employee's employment terminates immediately without further notice.
The motion judge awarded $157,071.57 in damages for wrongful dismissal.3
Court of Appeal Decision
The Township appealed the motion judge's decision. It argued that both the "for cause" and "without cause" termination provisions in the employment contract were consistent with the ESA minimum standards. The Township also argued that if the "for cause" termination provision was void for non-compliance with the ESA but the "without cause" provision was compliant, the "for cause" provision should be severed, leaving the "without cause" provision intact. Essentially, the Township argued that the Court should reconsider the precedent it set in Waksdale.4
The Township requested that the Court convene a five-judge panel to reconsider Waksdale, but the Associate Chief Justice denied the request.
The Court noted that there was no dispute Ms. Dufault's termination was on a "without cause" basis. However, rather than focus on the "without cause" termination provision, the Court's analysis turned on its interpretation of the "for cause" provision. The Court stated that the following three principles regarding the interpretation of employment contracts from Wood v Fred Deeley Imports Ltd.5 were particularly relevant to its analysis:
- The ESA is remedial legislation, intended to protect
the interests of employees. As such, courts should favour an
interpretation of the ESA that encourages employers to
comply with its minimum standards.
- Termination provisions should be interpreted in a way that
encourages employers to comply with the ESA minimum
standards. If the only consequence for an employer of drafting a
non-compliant termination provision is an order that they must
comply, employers will have little incentive to draft lawful
termination provisions at the outset of the employment
relationship.
- The interpretation of a termination provision and whether it meets the ESA minimum standards is based on the wording of the provision, and not on the actions of an employer. Therefore, even if an employer complies with the ESA standards at the time of termination, that compliance does not remedy an otherwise unlawful termination provision.6
The Court noted that s. 55 of the ESA and ss. 2(1)3 of Termination and Severance of Employment,7 create an exception to the requirement for an employer to provide a terminated employee with notice of termination or pay in lieu of notice, applicable where an employee "has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer."
The Court reiterated that the ESA standard of "wilful misconduct" is a higher standard than the common law standard of just cause. To come within the "wilful misconduct" exception, an employee's conduct must be done "deliberately, knowing they are doing something wrong" and be "bad on purpose".8
In this case, the Court held that the "for cause" provision allowed the Township to terminate Ms. Dufault's employment in circumstances that were broader than the narrow "wilful misconduct" exception under the ESA. In doing so, the Court took issue with two aspects of the "for cause" provision. First, the employment contract's definition of cause as a "failure to perform services" did not meet the "wilful misconduct" standard prescribed by the ESA. Second, the unlimited language in the employment contract stating that cause "shall include but is not limited to" certain conduct effectively gave the Township the authority to terminate Ms. Dufault without notice for reasons not covered by the ESA.9
The Court, therefore, agreed with the motion judge's finding that the "for cause" termination provision violated the ESA. It held that, as a three-judge panel, it was precluded from reconsidering the holding in Waksdale. Following Waksdale, because the "for cause" provision was void for violating the ESA, all termination provisions in the employment contract were unenforceable. Given this conclusion, the Court held that it was not necessary to consider whether the "without cause" termination provision was enforceable.10
Since the termination provisions were unenforceable, Ms. Dufault was entitled to damages based on the end date of her fixed-term employment contract.
Takeaway
The decision in Dufault reiterates the importance of reading the termination provisions in an employment contract as a whole to ensure they are ESA compliant. Even if an employer does not rely upon a non-compliant provision in terminating an employee, it will still be found to invalidate all termination provisions in an employment contract.
Footnotes
1. Dufault v The Corporation of the Township of Ignace, 2024 ONCA 915 [Dufault].
2. Waksdale v Swegon North America Inc., 2020 ONCA 391.
3. Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029.
4. Dufault, supra note 1 at para 7.
5. Wood v Fred Deeley Imports Ltd., 2017 ONCA 158.
6. Dufault, supra note 1 at paras 11-14.
7. Termination and Severance of Employment, O Reg 288/01.
8. Dufault, supra note 1 at para 17.
9. Ibid at paras 20-21.
10. Ibid at para 24.
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