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

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.

Are employment contracts necessary?

Are employment contracts really necessary? Here are the Reasonable Notice and Bonus Requirements.

I’m always surprised to see how many employers still adopt the “handshake” method when hiring employees. I can understand the temptation to be nostalgic, but these types of employment agreements can leave employers at loss. Especially when the employment relationship ends. Here are some things every employer should consider:

Reasonable Notice

Facts: The employee has worked for you for 7 years. You want to go a different way and he/she’s not part of the picture, so you let him/her go without cause. The law states you must provide either reasonable notice or pay in lieu of notice. How long will this notice be? It depends on whether you have a contract in place.

Contract: Employment contracts I draft or review for my clients will typically include termination provisions. The provisions set out what will happen when the employment is finished; amongst other things, the notice period that should be provided. Typically the provision will limit notice to the Employment Standards Act (ESA) minimum notice requirements. The ESA sets out the following parameters, depending on years of service:

Employer Notice Period

57 The notice of termination under section 54 shall be given,

(a) at least one week before the termination, if the employee’s period of employment is less than one year;

(b) at least two weeks before the termination, if the employee’s period of employment is one year or more and fewer than three years;

(c) at least three weeks before the termination, if the employee’s period of employment is three years or more and fewer than four years;

(d) at least four weeks before the termination, if the employee’s period of employment is four years or more and fewer than five years;

(e) at least five weeks before the termination, if the employee’s period of employment is five years or more and fewer than six years;

(f) at least six weeks before the termination, if the employee’s period of employment is six years or more and fewer than seven years;

(g) at least seven weeks before the termination, if the employee’s period of employment is seven years or more and fewer than eight years; or

(h) at least eight weeks before the termination, if the employee’s period of employment is eight years or more. 2000, c. 41, s. 57.

So, if drafted properly in the contract, the employee in the above example would have a right to 7 weeks notice.

No Contract

‍If there is no contract in place, the employee is allowed “common law” reasonable notice. Bardal v. Globe & Mail Ltd set the precedent for all wrongful termination cases treating reasonable notice requirements. Although less than 8 pages long, the decision set out what factors should be considered when deciding how much notice an employee should get. It is typically a lot more then what an employee would get under the ESA minimums. Employment adjudicators have added to the Bardal factors and although not exhaustive, the typical considerations are as follows:

the type or characterization of employment, for example, was it a contract position or permanent full-time position?
the age of the employee at the time of the termination;
the length of service that the employee provided to the employer;
previous employment history and luring, if applicable;
the experience and skill set of the employee at the time of the termination and whether this experience and skill set is transferable to reasonable alternative employment;
the employee’s salary at the time of the termination;
the current job market and the availability of reasonable alternative employment;
whether the employee was in a position of management or upper management;
does the employee have a health concern or disability that may impair securing alternative employment?
the manner of the termination; and
is this a single termination or a mass lay-off of 50+ employees?

Although not set in stone, adjudicators tend to adopt a month per year of service approach to notice. Cases will typically end up in that range and, depending on the factors above, there may be additional months added or reduced.

Taking the above example, that employee could expect something in the range of 7 months notice. The difference is significant. Let’s say the set income allowed the employee a weekly notice value of $1,000 (net). The ESA minimum would be $7,000. Common law notice would be in the range of $28,000.

As always, every case may be different. This is not an exact science and this example is a very simple version of what might occur. It does, however, stress the importance of having a contract in place that sets out the parties’ rights and obligations on termination.

Bonuses

Dealing again in termination, one provision that employers often miss is the right to bonus payment during the reasonable notice period. If a contract properly states that the bonus will not be paid for the period of reasonable notice, then the employee will not get paid a bonus after the termination date. If the contract doesn’t mention it, then the yearly bonus is deemed to apply throughout the entire notice period.

This applies to both discretionary and non-discretionary bonuses; that being said, there is some wiggle room on the discretionary bonus. For instance, in Fraser v. Canerector Inc., the employer successfully argued that the employee’s performance in the year pre-dating the termination did not merit the discretionary bonus.

Where the employee bonus is not discretionary, it must be expressly stated in the contract that the bonus will not be paid during the reasonable notice period. The concept was discussed in Paquette v. TeraGo Networks Inc. . In that case, the Court set out a two-part test for determining whether an employee is entitled to compensatory damages for the loss of a bonus:

Was the bonus an integral part of the employee’s compensation package, thereby triggering a common law entitlement to damages in lieu of bonus?
If so, is there any language in the bonus plan that would restrict the employee’s common law entitlement to damages in lieu of a bonus over the reasonable notice period?

It was recently applied in Singer v. Nordstrong Equipment Ltd.. In that case, the employee knew that the employer’s practice was not to pay out bonus entitlement during the reasonable notice period. Despite his knowledge of this fact, he was still awarded a quantified bonus. The Ontario Court of Appeal emphasised that the company did not limit the bonus payment in writing within the employees’ contract and that it needed to do so in order to refute any common law right that employee had to his bonus entitlement.

The Takeaway: Contracts are good for both employers and employees alike. They set out the parameters of the employment relationship and, if worded properly, can act as a strong dispute resolution tool. Clarity in the employment relationship is a crucial component of any healthy work environment. Drafting appropriate contracts to each employee is the best thing an employer can do to reduce overall costs and the potential for litigation.

Do you need an Employment Lawyer? Speak to one of our professionals and get the help you need.

I was injured on the job. Should I claim workplace insurance vs. my right to sue?

I was injured in a car accident while driving to drop off a package for my employer—I almost never drive as part of my job. I work in an office as a clerk. The other driver was charged. Now I am off work and need physiotherapy. My doctor says I may have a permanent injury to my back. I have received a Notice from the Workplace Safety Insurance Board (WSIB) requesting that I elect whether or not I want to receive benefits.

‍Can I sue the other driver and receive benefits?

‍No. In Ontario injured workers who receive WSIB benefits forego their right to sue on their own behalf. You may choose to elect not to receive benefits and preserve your right to sue a third party in some limited circumstances. In Ontario, employees who are insured under the Workplace Safety Insurance Act scheme are not permitted to sue their own employer for injuries sustained while working. Depending on the nature of your job, you may not be able to sue another worker or employer either.

However, if you are injured in a vehicle collision and the responsible driver is not a worker as defined in the Act then you may elect whether or not you wish to receive WSIB benefits or pursue the at fault driver. That is a complicated decision.

Generally speaking, the more serious the injuries you have sustained the more likely you will be better off foregoing WSIB benefits and pursuing the at fault driver. However, if there are questions about liability (if you are wholly or partially at fault), or if there is a question about your ability to successfully recover damages in a tort action the WSIB scheme may be the best option for you.

Deciding whether or not to elect to receive WSIB benefits is complicated, and best made with the assistance of a Lawyer with experience in such matters. Experienced Lawyers are available to consult with you, often without obligation to you.