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

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.

Are managers and supervisors ineligible for overtime pay?

I recently changed roles at work. My new title is “Accounts Manager” and I am responsible for all the company’s accounts payable and receivable. I also help other staff price our products and develop new accounts. I am very happy about my new role but my job used to be “9 to 5” and now I have to work late and on weekends. I asked my boss about overtime but was informed that managers and supervisors do not receive overtime pay. Is this true?

For most employees in Ontario overtime hours start after 44 hours of work in a week. For every hour worked in excess of 44 hours an employee is supposed to receive time and a half.

Under the Employment Standards Act there are exceptions to the general rule including that managers and supervisors do not receive any overtime compensation. For this “manager exception” to apply, an employee generally needs to be performing work that involves the supervision of other employees in a leadership role as opposed working in general administrative duties. Also, the exempt employee must be working in the manager role the majority of the time while at work - not just every now and then. The fact that someone’s job title includes the word “manager” or “supervisor” does not determine their entitlement to overtime pay. Rather, it depends on what the actual duties of the employee are.

Although many job titles, such Accounts Manager, include the word “manager” this does not necessarily mean you don’t get overtime pay. If your job does not involve supervising other employees this is a good indication that you may be entitled to overtime compensation. For more information you can seek legal counsel or examine the Ministry of Labour’s website at http://www.labour.gov.on.ca/.

What is "just cause" in employment law?

Last month local newspapers reported the case of a McDonald’s employee in Kanata who was dismissed after receiving poor performance reviews. The employee received more than $100,000.00 in court. Why?

‍The short answer is that the judge in this case found that although the employee’s performance was not perfect the employer did not have “just cause” to terminate her employment contract. If a business chooses to dismiss an employee the employer has to first decide if they have just cause to end the contract or not. Just cause exists when an employee has committed a serious breach of contract such as theft or continually missing work without reason. If the employer does not have just cause then in most cases they have to provide compensation which can equal up to a month of salary for every year of the employee’s service.

Many employers have staff who they believe are poor performers. Performance reviews are often done to encourage better performance but may also be an attempt to build a case for a just cause dismissal. After several poor performance reviews an employer may choose to dismiss an employee for just cause. However, a decision to terminate an employee for just cause can be challenged in court where employers often find it difficult to prove that the alleged breach of contract was serious enough to warrant a just cause dismissal. Poor performance reviews may show that an employee was less than perfect but this alone is usually not enough to disentitle them to some compensation when they are dismissed. Because compensation is typically based on the number of years the employee has worked, the amount owing to dismissed employee can be significant which is what occurred in the case of the former McDonald’s employee.