Fragile Clauses: Termination Provision Complexities

Man Reading Contract

Ontario employers may be used to having their termination clauses challenged on the grounds that they are unenforceable, in particular if they are ambiguous or purport to contract out of providing minimum standards under the Employment Standards Act, 2000 (the “ESA”). Recent caselaw in Ontario, such as Waksdale v. Swegon 2020 ONCA 391, has made it clear that termination clauses will be read together as a whole and any unenforceable portion of a termination clause will result in all termination clauses being thrown out.

Recent Caselaw

More recently, in Henderson v. Slavkin et al., 2022 ONSC 2964, the Superior Court of Justice was presented with a scenario where the employee, a receptionist, worked for an oral surgery office from April 1990 until her termination in April 2020, a period of 30 years. In and around 2015, the employee was provided with a new written employment agreement, which replaced her previous unwritten agreement. Additional consideration was provided to ensure that the agreement was binding.

The employee agreed to sign the letter and continued to work until her termination. The new contract purported to limit the employee to her ESA minimums. In late 2019, the employee was provided 6 months’ written working notice of termination with a termination date falling in April 2020. The employee challenged the amount of termination notice provided, and in her challenge pointed out several problematic provisions of her 2015 employment agreement. (The challenged provisions are found in full at Paragraph 13 of the case.)

Outcome

While the court found that the termination clause itself was consistent with the ESA, Justice Brown looked at provisions relating to Conflict of Interest and Confidential Information. Specifically:

  • The Conflict-of-Interest clause suggested that the employee may be terminated for cause for breaching the clause. However, it also contained word fragments and overbroad wording which was so general that it did not allow the employee to understand what actions could constitute a breach causing a termination for cause without notice.
  • The Confidential Information clause also suggested that the employee may be terminated for cause in case of a breach. Again, it was unclear what actions would constitute a breach.

In both cases, Justice Brown stated that employees are entitled to know, at the start of the employment relationship, what conduct could result in termination for cause without notice. This is because the ESA permits terminations without notice only under circumstances of wilful misconduct or wilful neglect of duty. Anything short of that would violate the ESA. The clauses included in the agreement did not provide clarity to the employee about what actions would be considered misconduct and therefore were found to be invalid by Justice Brown.

As a result, the invalid clauses of the 2015 employment agreement resulted in the invalidity of the agreement. The employee was entitled to termination pay amounting to 18 months, with a deducting of 3 months due to issues with the employee’s mitigation. Despite preparing a new employment agreement, the employers found themselves in a position where they did not benefit from the termination clause due to issues with other clauses in the contract.

Recommendations

Termination clauses must be drafted carefully with a holistic approach that considers the entire employment agreement. If other clauses in the agreement attempt, even unconsciously, to contract out of a minimum legislated standard then there is a likelihood that the contract will be invalidated, and the employer may not be able to rely on it to limit termination entitlements.

Employers in Ontario should always ensure they gain specific advice on each contract they are drafting and that the contract contains provisions that are well drafted, error free, and easy to understand for each employee. As the Henderson case shows, where this is not the case, the employer may find itself paying more than they expect.

At Bridge Legal & HR Solutions, we work with you to ensure that all contracts are well drafted and best practices are met, saving you time and money in the long-term. By tailoring our services to match your business strategy, we can deliver solutions that work for your company. If you need help with an agreement or advice from an experienced legal consultant, consider contacting our Toronto office at 647-794-5442 today.

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