Henderson v Slavkin et al, 2022 ONSC 2964

In 2015, Rose Henderson, a receptionist at a dental office, was asked by her employers to sign a new employment contract. The contract contained a provision limiting her entitlements only to those under the Employment Standards Act, 2000 ("ESA")1.

While the termination clause itself did not raise concern, the contract's confidentiality clause and the conflict of interest clause provided that a failure to comply with these clauses would constitute cause for termination without notice or compensation in lieu of notice.2 Henderson challenged the enforceability of these provisions, arguing that the provisions were contrary to the ESA. As a result of her challenge, she was (wrongfully) terminated. Henderson's former employers contended that the contract was neither illegal nor unconscionable and that Henderson's entitlements pursuant to the ESA were fully satisfied. Ultimately, the Ontario Superior Court ruled that the confidential information and conflict of interest provisions within the contract indeed violated the ESA and as a result, eighteen (18) months' reasonable notice was owing to Henderson.

The takeaway from Henderson is that a single contractual clause which violates the ESA with respect to termination can threaten the enforceability of that provision. This reinforces and goes beyond the Ontario Court of Appeal's earlier ruling in Waksdale v Swegon North America Inc.3 that a contract's termination provisions must be read as a whole. To the effect that if any aspect of the termination clause is found to contravene the ESA, the entire clause will be rendered null and void for all purposes. Henderson provides that any agreement or policy that states that a breach of that policy will lead to termination without compensation could invalidate any other enforceable termination clause. The law will continue to evolve in response to these developments.

Background

In Waksdale, the Court of Appeal's decision revolutionized employment law by ruling that the "without cause" termination provisions in employment contracts can be legally unenforceable if the wording of any other termination provisions elsewhere in that same contract contravene any aspect of the ESA or its regulations. The Court further stated that the severability clause could not save provisions of a contract that have been made void by statute.4 As the Supreme Court of Canada denied leave, Waksdale is the binding authority in Ontario for interpreting the validity of an employment agreement. Subsequent decisions including Gracias v. Dr. David Walt Dentistry5 and Rahman v. Cannon Design Architecture Inc6 reference the Waksdale ruling that an invalid just cause provision renders other termination provisions unenforceable.

Waksdale provides its analysis using the just cause standard but it is important to note the difference between the just cause standard and wilful misconduct in employment law. In order to be disentitled from ESA entitlements under the "wilful misconduct" standard in the Regulations, the employee must do something deliberately, knowing that they are doing something wrong.7 This test is higher than the test for "just cause": the employer must demonstrate that the employee purposefully engaged in conduct that he or she knew to be serious misconduct.8 Careless, thoughtless, or inadvertent conduct would not meet this standard.9 Differentiating between these standards is crucial in determining whether an employee was terminated for just cause or for wilful misconduct.

The Case of Henderson v. Slavkin et al

Henderson reinforces the reasoning behind Waksdale. The Ontario Superior Court of Justice found that the contract's provisions relating to confidential information and conflict of interest violated the ESA.

The Court outlined the basic principles forming the framework for the determination of the enforcement of a termination clause:

  1. Employees have less bargaining power than employers when employment agreements are made;
  2. Employees are likely unfamiliar with employment standards in the ESA and thus are unlikely to challenge termination clauses;
  3. The ESA is remedial legislation, and courts should therefore favour interpretations of the ESA that encourage employers to comply with the minimum requirements of the Act, and extend its protection to employees;
  4. The ESA should be interpreted in a way that encourages employers to draft agreements which comply with the ESA;
  5. A termination clause will rebut the presumption of reasonable notice only if its wording is clear, since employees are entitled to know at the beginning of an employment relationship what their employment will be at the end of their employment; and
  6. Courts should prefer an interpretation of the termination clause that gives the greater benefit to the employee.10

Where an employment agreement is not consistent with the ESA, the agreement becomes invalid and the terminated employee becomes entitled to common law damages.11

The Court found that the clause in the conflict of interest and confidential information provisions that provided that a failure to comply would constitute cause for termination without notice or compensation in lieu of notice was unenforceable. For both of these provisions, what constitutes a breach is overly broad and ambiguous to the extent that it exceeds the concept of wilful misconduct under the ESA.12

The Court rejected the employers' argument that the provisions only apply to wilful misconduct or wilful neglect of duty as the Court was unable to conclude that that was the case based on the wording of the provisions.13 As the clauses were not in compliance with the ESA, the employment contract was invalidated.

Conclusion

The Court's decision in Henderson should be a cautionary lesson for employers. It holds that a single ESA-violating clause that deals with termination within an employment contract can threaten the enforceability of a termination provision.

Employers should review the provisions together, in addition to any employment policies that government termination of employment, to ensure that the employment provisions do not offend the ESA.

"This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs."

This blog was co-authored by student-at-law, Abby Leung.

Footnotes

1 SO 2000, c. 41.

2 Henderson v Slavkin et al., 2022 ONSC 2964 at para 13.

3 2020 ONCA 391.

4 Ibid, para 14.

5 2022 ONSC 2967.

6 2022 ONCA 451.

7 Render v ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310 at para 79.

8 Ibid.

9 Ibid.

10 Wood v Fred Deeley Imports Ltd, 2017 ONCA 158 at para 28.

11 2022 ONSC 2964 at para 26.

12 Ibid at para 38.

13 Ibid.

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.