” Subject to the ESA ” Does Not Validate an Illegal Termination Clause”

In Perretta v Rand A Technology ( 2021 ONSC 2111) Sanfilippo J. considered the following termination clause

Termination With Cause – We may terminate your employment for just cause at any time without notice, pay in lieu of notice, severance pay, or other liability, subject to the ESA. For the purposes of this Agreement, “just cause” means just cause as that term is understood under the common law and includes, but is not limited to: [list of Eleven Categories of Just Cause].

In light of Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Court found that without the ” subject to the ESA ” language, this clause was clearly void.

The question then  becomes does the addition of these magic words save the day ?

This is what the Judge said :

[53] I accept Rand’s submission that, considering the entirety of the 2018 Employment Contract and the Termination With Cause Provision as a whole, there is a way that the Termination With Cause Provision can be read that is compatible with the ESA. The words “subject to the ESA” would have to be found to disqualify or neutralize the Offending Categories of Just Cause.

[54] Read generously, and by an employee well-versed in the ESA, the Termination With Cause Provision states in its first sentence that Ms. Perretta’s employment could be terminated at any time, without notice or pay in lieu of notice or severance pay, only if her conduct rose to the level of O. Reg. 288/01 of the ESA. However, the next sentence of the Termination With Cause Provision says the opposite. It says that Ms. Perretta’s employment can be terminated at any time, without notice or pay in lieu of notice or severance pay on the basis of the Offending Categories, which do not rise to the level of O. Reg. 288/01 of the ESA. Put differently, the second sentence of the Termination with Cause Provision would activate the Offending Categories as grounds for a ‘with cause’ termination, and the first sentence of the Termination with Cause Provision would deactivate the Offending Categories as grounds for a ‘with cause’ termination.

[55] The test of validity of a termination provision is not to struggle to find a way that the provision can be read consistent with the ESA, however convoluted. When the clause is ambiguous, as it is here, it must be read in a manner that provides the highest benefit to the employee. I adopt the statement by Sossin J. (as he then was) in Alarashi v. Big Brothers Big Sisters of Toronto, 2019 ONSC 4510, at para. 54-55: “While the clause can be read in a way that is compatible with the ESA, that is not the test for a valid termination clause, as affirmed in Andros. Because the clause could also be conveying to Alarashi that he may not be entitled both to termination pay and severance pay, the clause is at best ambiguous. In the face of ambiguous wording, the terminated employee is entitled to an interpretation that would lead to the highest level of benefit.”

[56] Although Rand says that its provision is “subject to the ESA”, the inclusion of the Offending Categories “flies in the face” of compliance with the ESA: as in Rossman, at para. 39. The ambiguity must be resolved in favour of Ms. Perretta by finding that the termination provision contravenes the ESA and is thereby invalid.

[57] The Defendant submitted that the ambiguity can be saved by the later provisions that state that when Rand’s employment contract results in a contravention of the ESA, Rand will comply with the ESA. These are ‘saving provisions’, and their proper use would be to safeguard against changes to the legislation made after the contract is concluded.

[58] An employer’s attempt to contract out of the ESA cannot be saved by a ‘saving provision’: Rossman, at para. 35: “It cannot be the case that the saving provision here – designed to make the Termination Clause compatible with future changes to the ESA – could reconcile a conclusory provision that is in direct conflict with the ESA from the outset”. Rand’s contract did not comply with the ESA “from the outset” and cannot now be saved by a savings provision.

My Comments:

In light of Waksdale, many employment contracts in Ontario need rewriting. This case should be of great benefit to those drafting new contracts who believe that all they have to do is include ESA savings  language .

Rather than write an illegal clause with ESA savings language, it is better to write the entire clause to be in compliance with the ESA from the beginning. These saving clauses are only relevant if the underlying statute or regulation change in the future. They do NOT cover changes in the common law or in how a Court may interpret a clause over time.

If you like a copy of this case, email me at barryfisher@rogers.com






Court Awards $5,660 in Notice But $60,000 in Aggravated & Punitive Damages :

In Fobert v MCRCI Medicinal Cannabis Resource Centre ( 2020 BCSC 2043) Fleming J. awarded 8 weeks notice to a 25 year old clerical employee with 1.5 years service.

However, the Judge was very concerned about the treatment the young employee received as she was being terminated. Here is what the Judge said:

[99] I note the employer’s dealings with the employee after the dismissal may be considered as part of the manner of dismissal: see Acumen Law Corporation v. Ojanen, 2019 BCSC 1352 at para. 126.

[100] I have no difficulty in concluding aspects of the defendants’ conduct during the dismissal process, after the termination meeting on May 24, 2019 significantly breached an employer’s obligation of good faith and fair dealing. That conduct included the ongoing withholding of Ms. Fobert’s unpaid wages and statutory severance, both modest amounts, well after the defendants were aware of their statutory obligations, and most significantly Mr. Liu’s conduct during the June 6 meeting.

[101] To be clear, I view Mr. Liu’s conduct during the June 6 meeting as appalling, harsh and reprehensible. He made false and serious allegations of financial impropriety, used aggressive and intimidating language and repeatedly engaged in a range of bullying tactics. Further, although he did not yell, his tone and manner of communicating were intimidating.

[102] To be specific, Mr. Liu alleged more than once that Ms. Fobert was part of a group of employees who had engaged in the misuse of enormous amounts of money although she never had any spending authority. In an obvious attempt to intimidate, he told her that the rest of the group had signed off without any severance. He made it clear the defendants were willing to sue and withstand being sued, emphasizing their financial advantage and his own. After indicating she would be offered nothing, he offered $500 severance, an amount well below her statutory entitlement. Mr. Liu then pressured Ms. Fobert into accepting the offer immediately, telling her it would be revoked after the meeting and refusing to put it in writing. He also commented that meeting over such a minor financial matter was not worth his time, which was disparaging if not contemptuous. The same is true of his response to a perfectly reasonable question about contact information, “I’m not you legal counsel. Go find the guy, 500 bucks an hour, to tell you “

That got her $25,000 in aggravated damages.

When it got to assessing punitive damages, the Court also focused on the Defendant’s litigation conduct.

[117] Ms. Fobert also relies on the defendants’ conduct in the litigation, namely making allegations of serious misconduct in the response to civil claim, despite admitting she was dismissed without cause. The pleaded allegations include Ms. Fobert breaching a non-competition term in the Employment Agreement by accepting employment with an MCRCI competitor “immediately subsequent to her termination”; and disparaging the defendants and their Directors to four MCRCI employees around the time of termination, which caused lost business and the resignation of employees. None of the allegations were even raised at the trial.

Having described the Defendant’s conduct as ” harsh and reprehensible ” as well as ” vindictive and malicious ” the Judge also awarded $35,000 in punitive damages.

If you would like a copy of this case email me at barryfisher@rogers.com



Judge Warns Against Employer Motions for Summary Judgement:

In Brown v Bank of Nova Scotia ( 2021 ONSC 2696 ) Myers J. dismissed a motion brought by the defendant for a motion for summary judgement alledging that there was a pre-litigation settlement.

On the issue of costs the Judge had the following to say

It is relevant to me as well that the motion was brought in a wrongful dismissal action by an employer against a former employee who seeks notice pay. The risk to the plaintiff of motion practice in wrongful dismissal actions is obvious and significant. This is especially the case where the employer does not allege that it had cause for dismissal. In the overwhelming majority of those cases, the employee is owed some amount of money by its former employer. There are few circumstances in civil litigation where the strategic risk of motion practice is higher. The thought of an unemployed employee, who is owed money by the employer, having to pay costs to its former employer is a massive strategic lever due to the vulnerable circumstances often occupied by wrongful dismissal plaintiffs and the gross imbalance of economic power. There is therefore additional reason to dissuade motion practice in wrongful dismissal actions generally and to ensure that deep-pocketed employers do not make strategic gains by bringing longshot motions that they can afford to lose. Costs on a substantial indemnity basis could well be available in such circumstances. 


Court Rules on Repudiation of Termination Clause and Awards Punitive Damages for Litigation Conduct :

In Humphrey v Mene Inc ( 2021 ONSC 2539) Justice Papageorgiou in a 68 page decision awarded 12 months notice to a 32 year old COO making $90,000/year with 2.7 years service.

There was a number of interesting issues decided by the Court :

  1. The Court found that the  termination provision was unenforceable because there was no fresh consideration when it was introduced mid term. The Court found that merely changing her status ( but not her pay ) from a consultant  to an employee did not suffice as she had in law been an employee throughout this period anyways .
  2. More interestingly, the Court also invalidated the without cause termination clause on the basis of repudiation. This is the concept that an employer cannot rely on an otherwise lawful  without cause termination provision in certain circumstances . This is how the Judge set it out

[135] I do not read any of the cases before me as laying down the proposition that in all cases where an employer asserts cause and fails it may nevertheless rely upon a without cause termination provision afterwards. The law of wrongful dismissal is based in contract. In all of the above cases, the courts had before them specific agreements with specific clauses which the courts construed. If the parties specifically agreed that the without cause termination provision required an election at the time of termination or that it expressly covered only certain acts of constructive dismissal, I see no reason why a court should not enforce that.

[136] In my view, the following principles emerge from the above cases:

a. Where an employer alleges cause and fails, or withdraws its cause allegation, or repudiates an employment agreement through acts which constitute constructive dismissal, the employer is not precluded from subsequently invoking a without cause termination provision for the purpose of calculating the employee’s damages: Roden, Moore, Simpson

b. However, in all cases, it is a question of construction of the without cause termination provision before the Court as to whether, properly construed, the without cause termination provision applies. Such clauses are subject to strict construction: Ebert, Matthews.

c. Even if the contract, properly construed, permits an employer to terminate without cause after a failed for cause termination, there are some breaches or acts of repudiation which are so significant, or of such an order of magnitude, that they render a without cause termination provision unenforceable: Dixon. Although Dixon has not specifically been considered and accepted by appellate courts I find the reasoning compelling. All employment agreements are negotiated and agreed to on the basis of certain implied minimum expectations as to how the employer will conduct itself, the duty of good faith being one. An employee’s agreement to accept terms which significantly impact on the employee’s common law rights must be taken to be made in the expectation that the employer will comply with these minimum implied expectations. Where the employer significantly departs from such expectations, in my view, the employee should not be held to extremely disadvantageous provisions which he, she or they agreed to. This is not rewriting the contract but giving effect to what the parties must reasonably have intended.

d. However, minor or technical mistakes made in good faith by the employer will not constitute a repudiation sufficient to prevent the employer from relying upon the without cause termination provision: Amberer, Oudin.

In other words, if the Employer acts in a manner inconsistent with the duty of good faith, this may invalidate the termination clause because good faith is part of all contractual provisions.

The Judge then goes on to set out why in this case the Employer’s conduct was such that it had repudiated its own agreement

[137] I am satisfied that in the circumstances of this case outlined above, Ms. Humphrey has established on a balance of probabilities that Men’s conduct, objectively viewed, demonstrates an intention to no longer be bound by the December 2018 Employment Agreement, thus repudiating it. The conduct which I have found includes setting her up to fail, subjecting her to a toxic workplace, embarrassing and humiliating her before co-workers and clients after her suspension, significantly exaggerating performance issues and the evidence it had in support of these at the time of termination, and alleging cause when it knew or should have known it did not have it. These are not mere technical breaches made in good faith. Men’s conduct in this case goes to the heart of the employment relationship.

My Comment on Repudiation:

This concept of repudiation has the potential of forever changing the way employment law is practiced. It is an unfortunate common employer practice to allege just cause in situations where it is clear that it will fail and is being alleged simply as an intimidation tactic in order to get a better deal for the employer.  In this same category is the defendants’ counterclaim which alleges huge damages because of the plaintiff’s actions.

In the past if this tactic did not succeed in getting a settlement, the employer could simply drop the defence with little worry of any serious consequences. Now it seems that deploying tis tactics could have a serious blowback by invalidating an otherwise valid termination clause.

It is important to know that in this case, the Defendant had originally alleged just cause but had dropped the allegation before trial.

3. The trial judge also awarded the Plaintiff $25,000 punitive damages  because of the Defendant’s litigation tactics. The Judge referred to these actions of the Defendant as grounds for awarding these damages :

a) They led extensive evidence as to the Plaintiff’s poor performance even though they no longer alleged just cause .

b) Some of these performance issues related to a time before the Plaintiff was promoted to her COO position.

c) The Defendants pleadings referred to irrelevant matters which rose to the level of malice.

d) The Defendants never formally amended their pleading withdrawing the just cause allegation so that the public record was not corrected .

e) The Defendant either lied about the existence of certain documents or destroyed them.

f) The defendant breached two Court orders regarding production.

g) Most upsetting, the Defendant in their material made reference to the Plaintiff’s dating patterns in that she used an on line dating service . As the Judge said “ I find that Mene’s. need to refer to Ms Humphrey’s personal life very troubling. Who and how Ms Humphrey dates is no business of Men’s or they Court’s. 

By the way, the Court also awarded $50,000 in aggravated damages because of the mental distress suffered by the Plaintiff given the manner of the dismissal

Lessons to be Learned:

Although it seems OK for Plaintiff’s to routinely make out sized claims for unfair treatment, harassment and discrimination, it now seems quite risky for Defendant’s to use the same scorched earth tactics.

In any event, it is becoming clearer that the Court will scrutinize employer’s actions both before and during litigation and severely punish employers who act in a fashion outside the Courts’ vision of acceptable  behaviour.

Employment litigation may not be a tea party, but neither is it supposed to be a fist fight.





Temporary Layoff Just Prior to COVID Pandemic Amounts to Dismissal :

In Ristanovic v Corma ( 2021 ONSC 3351) Justice Dunphy had a situation where two long service employees were given temporary lay off notices, one on January 31, 2020 and the other on February 18, 2020. The reasons given for the layoff notices did not reference COVID and they were promised to be recalled within 35 weeks . In fact they were not recalled within that period. Neither plaintiffs were ever subject to temporary layoffs before .

The Defendant advanced a defence that there is an implied term of employment that where an unprecedented event such as a global pandemic occurs, then the employer would be allowed to temporarily lay employees off without constituting it a dismissal.

The Judge said “NO’ to this theory for two reasons:

1) The layoff letters occurred “significantly before the facts that evolved to the point of a global pandemic impacting our entire Province or country.” Here is the extract :

[16] The defendant took no serious issue with the foregoing summary of the law. Instead, the defendant urged me to find that there is an implied term in the contract of employment of both plaintiffs authorizing the employer to lay off an employee as was done here when faced with the extraordinary circumstance of a global pandemic. I was urged to give consider the admonition of the Court of Appeal in Mifsud v. MacMillan Bathurst Inc., 1989 CanLII 260 (ON CA) concerning implied terms in a contract of employment. In Mifsud, McKinlay J.A. said that when “there is no written contract it is necessary first to determine what terms are implied in the specific contract involved, and those terms are not those which the court considers reasonable, but rather what the parties would have agreed to when forming the contract, had they turned their minds to the type of situation which later transpired” (at para. 18). Mr. Prentice forcefully urged me to find that the pandemic is a once in a lifetime occurrence. Had the parties turned their mind to it when the contract was first entered into, they would reasonably have agreed to permit a temporary lay-off to safeguard the ability of the employer to re-hire them when the situation improved. 

[17] It might be noted that only a few lines below the foregoing passage from Mifsud that I was urged to consider, McKinlay J.A. also cautioned that the exercise of implying terms into an unwritten employment agreement should not be undertaken to impose upon the parties the Court’s view of a “reasonable and just” contract. The exercise is one of determining the objective terms of the contract the parties entered actually entered into.

[18] In effect, the defendant is asking me to imply into a contract of employment a form of force majeure clause. I am mindful of the need to decide only those matters that require a decision in this or any other case. On the facts of this case, I don’t think that the question of an implied “global pandemic” exception to the well-settled law prohibiting non-consensual lay-offs properly arises. I reach this conclusion for two reasons. 

[19] First, the lay-offs in this case arose significantly before the facts had evolved to the point of a global pandemic impacting our entire Province or country. The lay-off letters sent did not, in fact, purport to justify the lay-offs of either plaintiff on the basis of an emergency that was global in scope impacting all sectors of the economy. The defendant itself told the plaintiffs in writing that they were being laid off because of “political instability” and a fall-off in orders. These circumstances were only beginning to produce impacts in Canada even if they were nevertheless having an out-sized impact on the defendant’s business. Over the coming weeks and months, the situation in China that side-swiped the defendant’s business in late 2019 and early 2020 morphed into a global phenomenon affecting businesses and employment the world over. There were no lock-down orders in effect in Ontario at the time the plaintiffs were laid off. The plaintiff was not prohibited from operating and the plaintiffs were not forbidden from coming to work.

[20] Without employing hindsight, there is little to distinguish the situation as regards Corma in late January/early February 2020 from any other adverse situation that might commonly affect a business, even to the extent of causing 40% of its revenues to dry up. A retailer may find business impacted by a big-box store opening a block away; a manufacturer may find the market flooded with imports as a result of a change in tariffs or a free-trade agreement. Insolvency, recessions or the evolution of the competitive marketplace have never justified unilateral lay-offs under our law. 

[21] Whether it may be reasonable to imply some kind of a force majeure clause in the case of a business prohibited from operating or placed under severe and unforeseen operational limitations by government action is something that I do not need to determine here on these facts. The circumstances existing when these plaintiffs were laid off do not reasonably lead to the conclusion that the parties would have mutually agreed to allow an indefinite lay-off with minimal compensation to be imposed upon employees had they but turned their mind to the prospect of their employer suffering headwinds – even material headwinds – in the operation of their business due to events abroad over which the employees have no control nor ability to provide for. 

2) Even if there was such an implied term, as the layoff extended beyond 35 weeks, the ESA deemed it to be a retroactive dismissal and thus this implied term would be in violation of the ESA.

My Comments:

This case is very fact specific.

At the time of both layoffs there was no Infectious Disease Emergency Leave in the ESA. However we now know that in light of the recent case of Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076 that the existence of that legislation does not prevent the plaintiff from claiming constructive dismissal 

This case starts to deal with the more interesting and troubling question of frustration of contract. If when  the employer is shut down by governmental mandate and therefore is prohibited from using the services of the employee does the the employment contract become  frustrated? This issue  remains to be determined in future cases.

ALERT: Winning plaintiff counsel was Jordan Reiner of Lecker and Associates in which my brilliant son, Matthew Fisher, is a partner.

If you want a copy of this case email me at barryfisher@rogers.com