Court of Appeal Strikes Down Termination Provision

Another One Bites the Dust...Court of Appeal Strikes Down Termination Provision

At this point, most employers know that termination provisions must be carefully drafted to ensure that they provide the minimum notice requirements for termination as set out in the Employment Standards Act, 2000 (the “ESA”). This applies to termination “without cause” provisions, as well as termination “for cause” provisions.

Under the ESA, the standard for terminating an employee for cause is “willful misconduct.” Conduct which permits the employer to terminate an employee “for cause” under the common law may not meet the statutory standard of willful misconduct. In such a case, the employer is required to pay the employee their minimum ESA entitlements. A termination provision which does not address this issue will be unenforceable.

In a recent decision, the Ontario Court of Appeal has found that where an employment agreement has a “for cause” termination provision which violates the ESA and a “without cause provision” which complies with the ESA, both provisions will be struck down as unenforceable. This is the case even if the employee is being terminated “without cause” and even in the face of a severability clause.

In Waksdale v. Swegon North America, the court examined an employment contract which had a termination “for cause” provision and a termination “without cause” provision in two separate paragraphs. The termination “without cause” provision complied with the ESA and was agreed to be enforceable. It was conceded that the termination “for cause” provision violated the ESA and was unenforceable Mr. Waksdale was terminated without cause but argued that because the “for cause” provision breached the terms of the ESA, this rendered both termination provisions unenforceable. The Court of Appeal agreed. The court found that the provisions must be read as a whole and that it is “irrelevant whether the termination provisions are found one place in the agreement or separated, or whether the provisions are by their terms otherwise linked.”

‍What does this mean for employers? Now is the time to review and update your employment agreements. Even if your termination provisions were drafted by an experienced lawyer, the wording used may be unenforceable. Many employment agreements currently in use have a “for cause” termination provision which does not comply with the ESA. This may now result in the termination “without cause” provision also being unenforceable.

‍What does it mean for employees? An employment agreement must be interpreted as a whole and not on a piecemeal basis. If you are terminated and are subject to the terms of an employment agreement, we strongly recommend that you have the entire agreement reviewed by legal counsel to confirm whether it complies with the ESA.

Frequently Asked Questions

I was just let go "without cause", what does this mean?

I was just let go "without cause". What does this mean?

Prior to engaging in any litigious action, clients should have a grasp of not only their rights but those of the employer as well. What may not appear fair, maybe either contractually or legally legitimate. The term "without cause" is seen in most termination letters. There's a very clear reason for this.

The threshold for cause is high and, if the employer is unsuccessful in meeting that threshold, they then risk being subject to damages for wrongful termination inclusive of not only proper notice, but aggravated and punitive damages as well.

A prime example of this risk coming to fruition is seen in Ruston v. Keddco MFG. (2011) Ltd., 2019 ONCA 125. Ruston, former president of Keddco, was fired for cause. Keddco alleged that Ruston committed fraud. When Ruston indicated that he would be retaining legal counsel, Keddco advised him that, if he hired a Lawyer, it would counter-claim against him. They warned that the costs of litigation would be extreme to both parties.

Ruston ignored the threat and filed a claim against Keddco. Keddco followed-up on their promise and brought a counterclaim for $1.7 million. The lower court found that the allegations of fraud could not be proven. It was held that Ruston was wrongfully dismissed. He was awarded 19 months termination pay, in addition to $100,000 in punitive damages and $25,000 in moral damages. The costs award was $546,684. The total award, including payment in lieu of notice, was just below $1 million. The Ontario Court of Appeal dismissed the employer's appeal and withheld the lower courts ruling on these matters. Keddco's total losses would have far exceeded $1 million with their legal costs included.

Had Keddco simply terminated the employment without cause and relied on a properly drafted termination provision, Ruston's damages could have topped out at the Employment Standards Act entitlements. Without a contract, common law notice would have been subject to the soft cap of 24 months and early settlement would have been possible. Without the allegation of fraud and the subsequent counterclaim, Keddco's worst-case scenario would have likely been much better than the current end result.

This is an example of why employers are often advised to dismiss without cause, asserting the employer's right to do so and relying on properly drafted contract provisions to navigate the employees' entitlements upon termination.

So what does this mean for employees? Firstly, do not assume that your performance can no longer be factored into an award for termination pay. The employer can always argue "near cause" which has reduced awards in past decisions. Understand, however, that the most prevalent dispute in a without cause dismissal is the employee's entitlement, by contract and by law.

Employees who are terminated without cause, need to acknowledge that the employer has the right to do so. Nonetheless, they must do so while preserving your entitlements. Those entitlements should not be assessed by yourself or your employer. All aspects governing the employment relationship should be forwarded to a competent employment Lawyer. The employment Lawyer will indicate your entitlements and provide an honest opinion on the viability of disputing the package that was offered.

What does this mean for Employees and Employers?

Employees: Once terminated without cause, do not sign a full and final release without having a Lawyer review the employment relationship and confirm your actual entitlements.

Employers: Asserting cause is a risky position to take. Cost-benefit might weigh in favour of dismissing the employee "without cause." The allegation of cause cannot be retracted. Counsel should be sought prior to alleging cause.

Sources:

Ruston v. Keddco MFG. (2011) Ltd., 2019 ONCA 125 (CanLII)

Ruston v. Keddco Mfg. (2011) Ltd., 2018 ONSC 2919 (CanLII)

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Are paid and unpaid internships illegal in Ontario?

I own a small events and promotions business. Every so often I get emails from students asking if they could volunteer to learn about the business. I’ve never hired a student because they’re inexperienced but I’m considering hiring one as an intern this summer. I don’t have the budget for a full time employee but I would be willing to pay them a modest stipend. I’ve heard both paid and unpaid internships are illegal in Ontario. Is this true?

In Ontario, the rules around internships are strict and in recent years some employers have been required to change their internship programs as a result. If someone is receiving on the job training from a business they are considered to be an employee of the business under Ontario law. As an employee they are entitled to a minimum wage under the Employment Standards Act so paying them a stipend that does not meet the minimum wage is against the law.

There are two exceptions to this general rule which recognize the educational value of internships. The first is internship programs approved by a college or university which are permitted.

The second exception is internships that meet criteria set by the Ministry of Labour. These requirements include that the intern is receiving valuable training, is not taking someone else’s job, and has not been promised a job after their training. The most important feature is the educational component: the primary purpose of internships is to teach valuable skills, not to provide cheap labour to businesses.

The safest way to ensure compliance with the law is to have an internship approved as part of a college or university program. Alternatively, you should design the internship ahead of time to focus it around training and skills development.

Workplace Travel: Must I go if I'm worried about my safety?

My employer has again asked that I work in a foreign country. I am concerned that this posting is unsafe. Last time I worked abroad multiple bombings took place and several governments closed their embassies. I also had my personal belongings stolen while I was in what was supposed to be a secure area. Do I have to go work in this country? If I do is my employer required to provide travel insurance in case something goes wrong?

‍The first thing to look at is your employment contract. Most employment contracts contain both written terms, and unwritten terms that are implied into the contract by law. The written portion of an employment contract usually mentions the benefits and insurance coverage that an employer is required to provide and it may also mention work locations and travel.

Unless travel insurance is covered in the original contract, or has since been agreed to by the employer, an employer generally cannot be forced to provide travel insurance. Also, most travel insurance policies will not cover all of the risks you’ve outlined. However, the failure to mention travel or relocation in a contract may prevent an employer from requiring that an employee work in a foreign country. Whether an employer can make such a request, without it being specifically mentioned in the contract, depends primarily on the nature of the work and if foreign travel to that country was expected or foreseeable when the employee was hired or promoted into their current position.

If an employee has a legitimate fear for their safety they may be able to argue that a travel request from their employer is not consistent with their contract. The context of the employment and the country involved are important considerations. For example it could be implied into many contracts that travel to the United States is acceptable, whereas travel to parts of Afghanistan is not. It is always best to review your contract, check your facts, and consult with a Lawyer before making any demands of your employer.