Excluding Severance Pay and Benefits Makes Termination Provision Illegal :

In Menard v The Centre for International Governance Innovation ( 2019 ONSC 858) Gray J. considered the validity of the following termination clause in a contract :

2.3 Termination of Employment.  During the Term, the Employee’s employment may be terminated:

a)      By the Employer,

i)        For Just Cause at any time by the Employer without notice and without any payment in lieu of notice.  “Just Cause” includes, without limitation, misconduct by the Employee, any breach or non-observance by the Employee of any of the conditions or obligations of this Agreement, any neglect or refusal by the Employee to carry out any the Employee’s responsibilities hereunder, any negligent performance of such responsibilities, and any insubordinate or insulting behaviour towards the Employer, its customers, donors, fellows, employees or contractors, the public or any other person, individual, entity or party in the habit or business of dealing with the Employer; or

ii)      Without cause, upon providing the Employee with the minimum notice for the time employed as determined under the Employment Standards Act, 2000 (Ontario), as amended or replaced from time to time,

And the Employee specifically acknowledges and agrees to the above and hereby waives any claim to further notice or payment or compensation

The Court reasoned that this clause was contrary to the ESA because as follows:

[105]            In the case before me, the language is clearly of the type considered by the Court of Appeal in Wood.  It sets up an entitlement to only the minimum notice under the Employment Standards Act, 2000, and thereafter specifically states that the employee “waives any claim to further notice or payment or compensation.”  It is clear that statutory entitlements, such as severance pay and benefit continuation, are excluded.  Thus, according to the reasoning of the Court of Appeal in Wood, the clause is void. 

The judge went onto to find that reasonable notice was 12 months for a 55 year old VP Finance making $172,0000/ annum with 6 years service.

Refusal to Accept Recall After Illegal Layoff = Failure to Mitigate

In Gent v Strone ( 2019 ONSC 155) Pollak J. assessed the notice period for a 50 year old Health & Training Specialist with 23.5 years service at 18 months .

The Plaintiff had been given a notice of temporary layoff, which the Court found was breach of his employment contract. Some two weeks later the plaintiff’s lawyer sent a demand letter claiming wrongful dismissal. Within a few days defence counsel says that the plaintiff would likely be recalled within a few days.

Surprisingly,  Plaintiff’s counsel then wrote  to defence counsel and said that his client would not return to work as the relationship had broken down .

Less than two weeks later the Plaintiff was recalled to his old position. The plaintiff refused the recall.

The Court found that his refusal to accept the recall was unreasonable for the following reasons :

  1. Although the Plaintiff testified that it would be embarrassing and humiliating to return to work, he gave no evidence to support this conclusion.
  2. The employer acted reasonably in the layoff.
  3. Even if, as the Plaintiff believed, the recall was a legal tactic to avoid having pay severance, that alone does not make it reasonable to refuse the recall.
  4. The plaintiff had made the decision not to return to work even before he was recalled.
  5. In his 23 years with the defendant, the plaintiff admitted that the relationship was ” harmonious and amicable”.
  6. The defendant had continued his benefits during the 3.5 weeks of layoff, thus they complied with the temporary layoff provisions of the Employment Standards Act.

The Plaintiff was entitled to actual damages for the period of the layoff. This came to 3.5 weeks or $4,846.15.

My Comments :

I see this application of the Evans v Teamsters principle often in my mediations. It is a extremely risky tactic for the plaintiff to refuse such a recall. It is also a risky defence tactic to make such an offer if your client actually dreads the idea of the plaintiff coming back to work.

It is important to note that this recall notice was not done as an offer to settle the case. Had it been framed that way, then the correspondence between counsel would have been ” without prejudice” and thus not admissible.

The plaintiff could have accepted the recall and still preserved his right to claim and then sue for his lost wages between the time of the layoff and the  time of the recall.

This threat will often convince the employer that he better off getting rid of the employee and negotiating an overall severance package rather than employing someone who is actively suing them.

$300,000 for Aggravated and Punitive Damages Awarded:

In Johnston v The Corporation of the Municipality of Arran-Elderslie Justice Conlan awarded a Chief Building Official ( CBO) $200K in punitive damages and $100K for aggravated damages.

With the full knowledge of his employer, the Plaintiff had, in addition to his job  as CBO, a private design company in which he designed buildings.  The Court found that he was permitted by the employer to conduct inspections on buildings that he had designed himself. The Court noted that this was a conflict of interest but that as the employer had full knowledge of the conflict, this action could not be just cause.

The real allegation of cause had to do with the issue of whether the Plaintiff tried to deceive  from his employer his involvment in two inspections on buildings that he had designed.

The Court found that there was no such deception and in fact it looked like certain persons at the employer may have “set up” the evidence so as to try to get the Plaintiff fired.

Citing a similar case called Pate v Galway-Cavendish ( Township( ( 2011 ONSC 3594) the judge found that punitive damages were appropriate for the following reasons:

[158]                 Similarly, Johnston’s career as a CBO has never recovered since June 2009, despite numerous job applications that he has submitted.  His marriage ended in part due to the events leading up to and on June 25, 2009.  His private design business fell nearly dormant during the latter half of 2009.  And the repeated media coverage, in a small area, partly inaccurate, caused Johnston much embarrassment and humiliation.

[159]                 The especially egregious conduct of the Township in Mr. Pate’s case, in withholding exculpatory evidence, is not present in our matter.  Having said that, the manner in which Johnston was fired is very concerning to this Court.

[160]                 To invite Johnston to attend at the Municipal building on June 25, 2009, and not tell him why, and have police there to essentially guard him, and have a termination letter and press release already prepared, and ambush him with some kind of interrogation by Tunnock, and then put out for public consumption a grossly misleading statement that gave the false impression that Johnston was banned outright from designing buildings located within the Municipality, was very unfair, in my view.


[162]                 In my opinion, quite apart from the unjustified termination of Johnston’s employment, the manner of his dismissal amounts to a wrong that is deserving of an award of punitive damages.


The Court also awarded $100,000 for aggravated or moral damages, with the following reasoning.

[164]                 Turning to aggravated damages, sometimes referred to as moral damages, Johnston must “prove actual damages resulting from the employer’s conduct in the manner of dismissal that exceed the normal distress associated with dismissal.  This is a high evidentiary threshold that many plaintiff employees will simply not be able to meet”.  2018 Update on Extraordinary/Moral/Aggravated Damages, by Alan Whyte.

[165]                 Moral damages are compensatory in nature.  This Court should ask itself whether the Municipality engaged in conduct during the course of Johnston’s dismissal that was “unfair” or “in bad faith” and caused Johnston mental distress that went beyond “normal distress and hurt feelings resulting from a dismissal”.  2018 Update, supra, quoting from Keays v. Honda Canada Inc., 2008 SCC 39 (CanLII), at paragraphs 56 and 57.

[166]                 I disagree with the Municipality that there is no evidence apart from Johnston’s own testimony to substantiate his claims about weight loss, the demise of his marriage and the inordinate stress that he was under just before and after June 25, 2009.  There is also the corroborative evidence of Donna and McLean.

[167]                 I am of the opinion that the Municipality acted in bad faith in having Johnston attend at the Municipal building on June 25, 2009 and then surprise him with another “audit”, the result of which was a forgone conclusion given that Council had already decided to terminate him earlier in June, and the ink was still wet on the dismissal letter and press release.

[168]                 I am also satisfied that Johnston’s mental distress on and after the date of his dismissal went beyond that reasonably expected of any employee who is fired.  Weight loss, loss of appetite, irritability, sleeping problems, marital breakdown, and social isolation were just some of the emotional consequences suffered by Johnston as a direct result of his harsh dismissal.  I accept the evidence of Johnston, his mother and, to some degree, McLean in support of those findings.

[169]                 Johnston is entitled to an award of aggravated damages.  On quantum, I must keep in mind the overall principle of proportionality.  I have already decided to punish the Defendant with a sizeable award of punitive damages.  The potential for double recovery must be guarded against.

[170]                 I do not agree with the Plaintiff’s suggestion of aggravated damages in an amount equivalent to what Johnston would have earned over the course of his contract that existed on the termination date.  That is not the proper measure of aggravated or moral damages.  It sounds more like the concept of expectation damages for breach of contract.

[171]                 In Pate, supra, the mental distress suffered by the dismissed employee was no greater in degree than that sustained by Johnston.  Mr. Pate was awarded $75,000.00 in aggravated damages.  That quantum was not disturbed on appeal.

[172]                 I award to Johnston the sum of $100,000.00 in aggravated damages.  Although that is a little higher than what was given to Mr. Pate, I have taken into account the total award of both aggravated and punitive damages in the two cases.

My Comments:

This case just reinforces my belief that there is little ascertainable difference between the grounds for punitive damages and aggravated/ moral damages.

The judge mentions the same following issues in both the  reasoning for punitive and aggravated damages:

  1. The collapse of the plaintiff’s marriage .
  2. The manner of the dismissal.
  3. The publishing of the false reasons for the dismissal.

In my opinion the law would be better served in we collapsed both these concepts into one and simply awarded damages beyond reasonable notice where the conduct of the employer was outrageous and/or outside the range of conduct that we as a society expect from employers and employees.

16 Months Notice Period Reduced 2 Months Due to Future Contingencies;

In Spalti v MDA Systems ( 2018 BCSC 2296 ) Gomery J. assessed the reasonable notice period for a 55 year old salesman  with 13.7 years service at 16 months. However because this motion for summary judgement was held only 4 months after termination , the judge applied contingency reduction of 2 months.

This is the judges’ reasoning :

Assessment of a contingency reduction

[35]        It is well established that consideration of a contingency reduction in the notice period is appropriate in the context of a notice period that is not yet close to expiring when judgment is given.

[36]        In an appropriate case, the notice period may be reduced to mitigate the possibility of double recovery.  Gray J. addressed this issue in Luchuk v. Starbucks Coffee Canada Inc., 2016 BCSC 830 (CanLII) at paras. 46-51 and observed:

[46]            Wrongful dismissal cases are awkward, because the claim arises when the individual has been dismissed without reasonable notice, and then there is a bit of a race. Naturally the person who was dismissed would prefer to have an award from the Court and then afterwards get a job, because they would have a windfall, in the sense of receiving income from two sources representing the same time period. Naturally the defense would prefer that the plaintiff had found a job before the court hearing, because if the plaintiff has replaced the employment with another job, then he or she will not have suffered the loss of their entire employment income for the notice period. This tension is always present in wrongful dismissal cases, and it is something that the Court has to be mindful of.

[37]        The reduction is driven by the court’s assessment of the likelihood that the plaintiff, exercising reasonable diligence, will obtain alternate employment before the notice period would have expired.  It is therefore relevant to consider the length of the unexpired portion of the notice period and the likelihood that the plaintiff will obtain employment that would be have to be taken into account, in mitigation of his damages, if the trial had taken place later.

[38]        Where a reduction is warranted, the cases cited by counsel all involved reductions of one or two months.  In Luchuk, the case was decided five months into an 18 month notice period, and Gray J. reduced the notice period by one month to reflect the contingency.  In Earl v. Canada Bread Company, Limited, 2007 BCSC 1574 (CanLII), the case was decided four months into a 17 month notice period and Ehrcke J. reduced the notice period by two months to reflect the contingency.

[39]        In this case, the matter is being decided four months into a 16 month notice period.  Absent a contingency reduction, the notice period still has approximately a year to run.  While Mr. Spalti faces substantial obstacles in his search for alternate employment, I have already noted that I do not think they are insurmountable.  It is possible that he will find work within the notice period that pays significantly less than he was earning with MDA, and partially mitigate his loss in that way.  In my judgment, a two month contingency is appropriate.

[40]        Taking this contingency into account, I conclude that Mr. Spalti is entitled to a damages award based on an adjusted notice period of 14 months.

Just Saying Just Cause Makes Termination Clause Possibly Illegal

In Khashaba v Procom Consultants Group ,        ( 2018 ONSC 7617) Justice  Carole Brown  had to rule on the legality of the following clause in an employment contract.

(b)        Termination for Cause           Procom may, at its option, terminate your employment immediately for cause, without prior written notice or compensation of any nature. For these purposes, “cause” means any grounds at common law for which an employer is entitled to dismiss an employee summarily without notice or compensation in lieu of notice.

The judge ruled that this clause was illegal. Here is her reasoning :

Does the Employment Agreement violate the ESA?

[52]           The “Termination for Cause” provision of the Employment Agreement does not comply with the ESA as it allows for termination without notice or termination pay for conduct meeting the standard of just cause at common law, while the ESA requires the higher standard of “wilful misconduct”.

[53]           Plester v. Polyone Canada Inc., 2011 ONSC 6068 (CanLII), aff’d 2013 ONCA 47 (CanLII), considered the difference between wilful misconduct and just cause at common law, concluding that wilful misconduct is a higher standard. Wilful misconduct involves an assessment of subjective intent, whereas just cause is a more objective standard. Wilful misconduct is colloquially described as “being bad on purpose.” Careless, thoughtless, heedless, or inadvertent conduct, no matter how serious, does not meet the ESA wilful misconduct standard. By contrast, common law just cause for dismissal may be found on the basis of prolonged incompetence, without any intentional misconduct. See also Cummings v. Quantum Automotive Group Inc., 2017 ONSC 1785 (CanLII) at para. 37.

[54]           The saving language in the “Termination without Cause” provision, which states that no employee will get less than they are entitled to under the ESA, cannot apply to save the “Termination for Cause” provision. Procom relies on  Burton v. Aronovitch McCauley Rolley LLP, 2018 ONSC 3018 (CanLII), in which the court found that interpreting the employment agreement in accordance with the intention shown in a “saving provision” meant that there was no violation of the ESA. However in Burton, the saving language was obviously applicable to the part of the termination clause that allegedly violated the ESA. The saving language came after the part of the termination clause that allegedly violated the ESA and stated that “notwithstanding the foregoing, and for greater certainty” an employee will be entitled to everything the ESA requires. Here, the provisions are separate, and it is not at all clear that the saving language within the “Termination without Cause” provision applies to terminations under the “Termination for Cause” provision.

[55]           The principle that “where the language of a termination clause is unclear or can be interpreted in more than one way, the court should adopt the interpretation most favourable to the employee” must also be considered: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII)at para. 40, citing Ceccol v. Ontario Gymnastics Federation (2001), 2001 CanLII 8589 (ON CA), 149 O.A.C. 315.

So far this looks like a victory for the employee.

However the judge then effectively severed this illegal section from the rest of the clause.

[61]           The “Early Termination” provision of the fixed term contract is made up of five separate clauses. Clause (b) is “Termination for Cause”, Clause (c) is “Termination without Cause.” The remaining clauses are not about the manner in which the employer can terminate the employee. Clause (a) governs resignation by the employee, Clause (d) provides that “these provisions” shall remain in effect throughout the agreement and any renewal or extension of the agreement, and Clause (e) governs the employee’s responsibility to return the client’s property if the employment terminates for any reason.

[62]           The non-compliance with the ESA is within only one of the five clauses: the “Termination for Cause” clause. This distinguishes it from the cases the applicant cites which state that one violation of the ESA renders an entire termination provision void. In North v. Metaswitch Networks Corporations, 2017 ONCA 790 (CanLII), Wood v. Fred Deeley Imports Ltd., 2017 ONCA 168 (CanLII) and Miller v. A.B.M. Canada Inc., 2014 ONSC 4062 (CanLII), relied on by the applicant, all terms of the agreement governing an employee’s termination were contained within one clause. The illegal aspects were sentences or missing words that resulted in an illegal attempt to contract out of an ESA minimum. The courts in those cases held that the entire clause should be void because of the illegality. In Andros v. Colliers Macaulay Nicolls Inc., 2018 ONSC 1256 (CanLII), the termination provision contained two sub-clauses. The trial judge analyzed each separately and found that each were separately illegal and void.

[63]           I interpret the references in the case law to a single violation of the ESA rendering an “entire termination clause” void to mean that the entire clause which contains the illegality should be void. No words or sentences in the clause containing the illegality should be valid or enforceable for any purpose. In this context, the entirety of the “Termination for Cause” clause should be void.

[64]           The other clauses of the “Early Termination” provision remain valid and enforceable. This result accords with the objectives of the ESA. The “Termination without Cause” provision does not violate the ESA. It also contains explicit language showing the parties’ intent that it should comply with the ESA. The other clauses in the “Early Termination” provision do not relate to the manner in which an employer can terminate an employee’s employment. There is no reason why they should not remain valid and enforceable.

[65]           Although I do not rely on this clause, I also note that the agreement contains a severability clause which indicated the parties’ intention that illegal portions of the agreement should be severed.

[66]           I am aware of Iacobucci J.’s statement in Machtinger, confirmed by the Ontario Court of Appeal in Wood, that termination clauses should be interpreted in a way that incentivizes employers to draft ESA-compliant termination clauses at the outset. However, in finding only the “Termination for Cause” clause void, I am not interpreting, rewriting or reading down any part of the Employment Agreement to make it comply with the ESA. I am interpreting the illegal clause, the “Termination for Cause” clause as void.

[67]           I am not of the view that Machtinger, and the jurisprudence that follows it, require that upon finding a violation of the ESA in a termination clause, a court must ignore ordinary contract principles, the intentions of the parties, and common sense. I agree with the statement of the B.C. Court of Appeal in Miller v. Convergys, 2014 BCCA 311 (CanLII), leave to appeal denied, at paras. 14-15 that “the construction of an employment contract remains an exercise in contractual interpretation, and the intentions of the parties will generally prevail, even if this detracts from employment law goals that are otherwise presumed to apply.” In this case, the contract evinced a clear intention to comply with the ESA, the violation of the ESA was in a separate provision from the rest of the contract, and the contract contained a severability clause.

[68]           Furthermore, the way that Procom breached its contract with Mr. Khashaba bears no resemblance to a typical termination. It is difficult to understand the termination of the agreement between Procom and Mr. Khashaba as a termination for cause or without cause. What happened was that the position he was promised was not available. The wrong done to Mr. Khashaba is more sensibly understood as a negligent misrepresentation. Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87 at paras. 43-46 held that representations made by an employer to a prospective employee in pre-contractual negotiations are subject to a duty of care. At para. 62, the Supreme Court defined the standard of care:

A duty of care with respect to representations made during pre-contractual negotiations is over and above a duty to be honest in making those representations. It requires not just that the representor be truthful and honest in his or her representations. It also requires that the representor exercise such reasonable care as the circumstances require to ensure that the representations made are accurate and not misleading.

[69]           In Queen v. Cognos Inc., Cognos represented to Mr. Queen that the job he was applying for existed, when in fact it was subject to budgetary approval. Similarly, Procom represented to Mr. Khashaba that the job with Alectra existed, when in fact it knew that Alectra had decided to give the job to another candidate. Procom was not truthful and honest in its representations. There is no doubt that it should have taken more care to ensure that Mr. Khashaba was aware of the truth of the situation. However, the relationship between the wrong done to Mr. Khashaba and the violation of the ESA in the Employment Agreement is no more than a coincidence.

[70]           For all of these reasons, I find that while the “Termination for Cause” provision is void, the other clauses of the “Early Termination” provision remain valid and enforceable.

My Comments :

As the judge seemed to rely more on the fact that in this case there might not have even been a termination of employment, it may be that her reasoning on the illegal aspects of the case are obiter, in other words, not binding .

It also seems to flow that if the termination with just clause sentence is contained in the same paragraph as the  clause as the termination without cause clause, then the whole clause is illegal .

This minor grammatical difference would seem to add even more uncertainty to an already uncertain area of the law.