Waiver and Severability Clause Cures All Defects in Employment Contract

In Oudin v Le Centre Francophone de Toronto, 2015 ONSC 6494 ( Can LII) , Justice Sean Dunphy of the Ontario Supreme Court was faced with a contract that limited the the employees’ rights on termination to the minimum requirements of the Employment Standards Act        ( ESA) . The plaintiff attacked the clause on various grounds claiming that parts of the clause were void as they contradicted the ESA and that other parts were ambiguous.

The termination provision contained the following clause ( as translated from French in the judgement ):

12. Waiver and Severability
12.2 If any of the provisions of the present agreement is invalid or unable to be performed by virtue of any law, regulation, order or any other requirement or other principle of law, this modality shall in such case be considered to be modified or nullified, but only to the extent necessary to comply with the statute, regulation, order, legal requirement or principle and the other dispositions of the present agreement shall remain in force.

Dunphy J. used this clause to in essence fix up the void provisions of the termination clause and rewrite them so as to be in compliance with the minimum provisions of the ESA. Here is his reasoning:

39] The plaintiff relies upon the decision of the Supreme Court of Canada in Machtinger (supra). In Machtinger (supra), whether through deliberate action or accidental slip, it was common ground that provisions of the contract had the effect of providing a lower standard than that prescribed by the ESA. The issue in Machtinger (supra) was whether the court could have regard to the admittedly invalid termination provisions of the employment contract in determining what level of reasonable notice should be implied in construing the contract. Iacobucci J. delivered the judgment of the majority and held that if the clause is void for one purpose, it cannot be looked at for another where there was no evidence as to what the intention of the parties would be in the event the clause was found to be void.

[40] That is simply not the case here. The parties have explicitly spelled out what they intend to do in the event any part of the contract is found to be unenforceable. In s. 12(2) the parties have provided that “[i]f any of the provisions of the present agreement is invalid or unable to be performed by virtue of any law, regulation…this modality shall in such case be considered to be modified or nullified, but only to the extent necessary to comply with the statute, regulation, order, legal requirement or principle and the other dispositions of the present agreement shall remain in force” [translation].

[41] Section 4 contains a precise list of reasons (“motifs”) for which immediate termination of the employment relationship without notice is authorized. Among the reasons listed was “continuing incapacity considered permanent”. That particular reason for immediate termination is invalid. The excision of the offending reason from the list does no violence to the integrity of the remainder of s. 4 which contains a list of other unrelated grounds for termination. It is significant that s 12(2) does not direct the court to do anything as clumsy as deleting the entire section or clause of the employment agreement. Rather, it directs that the “modality” be modified or nullified to the extent necessary.

[42] I conclude that section 12(2) directs that section 4 must be modified to remove the reference to permanent disability from the list of reasons (“motifs”) in s. 4. Removing that reason alone is the minimum extent necessary to give effect to s. 5(1) of the ESA and can be simply and logically done while introducing neither ambiguity nor uncertainty in the remainder of the clause as so modified. That is precisely what s. 12(2) directs be done in plain and simple language. There is no reason to disregard the express direction of the parties as contained in s. 12(2).

As read this judgement, as long as an employment contract contained this savings clause, the remaining parts of the contract could violate as many statutory provisions as they want because the Court would simply rewrite the contract so as to bring it into compliance with the offended statute.

Imagine  a contract that had the above mentioned savings clause but also contained the following provisions :

1. This is a “at will ” contract and therefore the Employer can terminate this contract without any notice or pay in lieu of notice.

2. Overtime will be paid only after 75 hours per week.

3. No parental leave is allowed.

4. The Employer has the right at any time to require you to undergo a lie detector test .

5. If you become disabled for more than 5 days, you agree to immediately resign your employment.

Applying the reasoning of this case, the employment contract would be completely rewritten by the Court as follows:

1. Your only entitlement upon termination is as set out in the ESA. You are not entitled to reasonable notice.

2. Overtime will be paid after 44 hours.

3. Parental leave under the ESA is permitted.

4. The Employer cannot ask you to take a lie detector test.

5. If you are disabled for 5 days, we will not demand that you resign.

Needless to say that would be absurd, but apparently quite lawful, according to the logic of this case.

This decision fails to take into account the realities of the workplace. It assumes that employees are so highly educated in employment law  that they would know exactly which provisions of the contract breach the Employment Standards Act, 2000 ( and its many regs) the Labour Relations Act, the Occupational Health and Safety Act, the Workplace Safety and Insurance Act, the Human Rights Code, the Pay Equity Act, the Accessibility for Ontarians  with Disabilities Act, 2005. Moreover the employee would have to have a good understanding of Canadian constitutional law as well because he or she would first have to determine if their potential employer was covered by provincial or federal employment law . If covered by federal law, the above list of provincial statutes would be largely substituted by their federal counterparts.

Dunphy J addressed the point of the sophistication of the plaintiff in the following paragraph:

[47] Once again, the plaintiff cites Machtinger (supra) in support of this argument. The plaintiff contends that only the clearest of waivers of the reasonable notice standard will suffice since absent such a bright line, employers may be tempted to attempt to cheat employees of their minimum ESA entitlements. Indeed, In Machtinger (supra), Iacobucci J. noted that many employees might not be aware that there is such a thing as minimum required notice and employment contracts may often involve a disparity in bargaining power. Such considerations are not in fact present here. The plaintiff is a well-educated individual. Far from reflecting a disparity of bargaining power, the employment agreement in this case represented a significant opportunity for the plaintiff to earn additional income based on a higher guaranteed base salary and a higher commission rate.

This was a motion for summary judgement. There is no mention at all in the judgement as to what education the plaintiff had . All we know is that he was a 68 year old Project Manager for a company that produced a ” glossy magazine ” ( para 8 of the judgement) .

Let us  assume that he finished high school , maybe even had a college degree in something. How does that make him so well educated that he is deemed to have knowledge of the entire ambit of Canadian employment law so that he would be able to ascertain which parts of his contract are valid, which are void and for those void provisions, what exactly are the new substituted provisions?

Employers write contracts because they don’t like the implied term of reasonable notice. I get it. Why however, should Courts allow employers to use convoluted language like in this case to spell out what they will pay upon termination? Why not simply require employers who want to limit their termination obligations to spell it out in clear terms without reference to complicated statutes that many lawyers do not fully understand ?

The Supreme Court of  Canada has now brought to the common law of  contracts, including employment contracts, the doctrine of honest dealing. Surely an important component of that duty is to draft termination provisions that are easy to read and comprehend for the average employee.

Employment contracts are not like agreements between large entities, each with a battery of lawyers to draft and review their agreements . They are much more like consumer contracts where fairness and clarity rule the day.

I am advised that this case is under appeal. I am hopeful that the Ontario Court of Appeal uses this case to give some enlightenment to this contentious and  difficult area of employment law.


Economic Conditions of Employer is Irrelevant When Determining Reasonable Notice

In Michela v St Thomas Villanova Catholic School       ( 2015 ONCA 801) the Ontario Court of Appeal held that “An employer’s financial circumstances may well be the reason for terminating a contract of employment – the event that gives rise to the employee’s right to reasonable notice. But an employer’s financial circumstances are not relevant to the determination of reasonable notice in a particular case: they justify neither a reduction in the notice period in bad times nor an increase when times are good.”

This case decisively ends the debate over the last 20 years as to the proper meaning to be drawn from a previous  case entitled Bohemier v Storwal International ( 1982 ) 40 O.R. (2d) 264 ( H.C.) . Here is what the Court said about that issue.

“[18] The confusion in this area stems from Bohemier v. Storwal International Inc. (1982), 40 O.R. (2d) 264 (H.C.), cited by the motion judge, at para. 91, to support the proposition that “[u]ncertainty, especially where an employee knows that there are financial concerns, can be a factor in reducing the length of notice that might otherwise be reasonable…” The motion judge quoted the following passage found at p. 268 of Bohemier:

An employee may be dismissed either on reasonable notice or by payment in lieu of notice. The latter alternative is almost invariably selected because, for obvious reasons, it is not helpful to a business to continue to employ a person who has received notice of dismissal. Payment in lieu of notice involves a cost to the employer for which there is no corresponding production or benefit. In my view, there is a need to preserve the ability of an employer to function in an unfavourable economic climate. He must, if he finds it necessary, be able to reduce his work force at a reasonable cost.

[19] However, the key sentence in Bohemier – not quoted by the motion judge – follows on from the passage quoted above, at p. 268:

It seems to me that when employment is unavailable due to general economic conditions, there has to be some limit on the period of notice to be given to discharged employees even if they are unable to secure similar employment within the notice period. [Emphasis added.]

[20] Bohemier does not hold, and this court has never held, that an employer’s financial difficulties justify a reduction in the notice period. It does no more than to hold that difficulty in securing replacement employment should not have the effect of increasing the notice period unreasonably. That is what this court should be taken to have meant when, in its brief endorsement in Bohemier, it said that the lower court judge was right to “tak[e] into account economic factors when considering the case for each of the parties”: (1983), 44 O.R. (2d) 361, at p. 362, leave to appeal to SCC refused, [1984] S.C.C.A. No. 343.

[21] Nevertheless, it is clear that Bohemier has caused some confusion in wrongful dismissal litigation. Most recently, it was relied on in Gristey v. Emke Schaab Climatecare Inc., 2014 ONSC 1798, 2014 C.L.L.C. 210-028, in reducing an employee’s notice period by one-third as a result of the relatively poor state of the market and the financial health of the employer.

[22] It is important to emphasize, then, that an employer’s poor economic circumstances do not justify a reduction of the notice period to which an employee is otherwise entitled having regard to the Bardal factors. See Anderson v. Haakon Industries (Canada) Ltd. (1987), 48 D.L.R. (4th) 235 (B.C.C.A.), at pp. 238-41 (Lambert J.A.), pp. 243-44 (Wallace J.A.); Farquhar v. Butler Bros. Supplies Ltd. (1988), 23 B.C.L.R. (2d) 89 (C.A.), at pp. 92-93; and Sifton v. Wheaton Pontiac Buick GMC (Nanaimo) Ltd., 2010 BCCA 541, 12 B.C.L.R. (5th) 90, at paras. 34-35, 47-50.”

Practitioners of employment law will be pleased that an otherwise uncertain area of the law( determining reasonable notice )  is now a little more certain.

7 Day Trial = $225,000 in Cost Award

In Gordon v Altus Group ( 2015 ONSC 6642) the Defendant was ordered to pay $225,000 plus disbursements on a partial indemnity basis after a 7 day trial in which the plaintiff was awarded $268,000 in damages. No Rule 49 offer from either party was operative. The plaintiff claimed $500,000 for substantial indemnity costs, meaning that he  presumably  actually paid his lawyer that amount. If that is true, the winning plaintiff was awarded a total of  $493,000 and then paid it all to his lawyer.. Assuming that the defence lawyer also charged his employer client $500,000, the net economic result is that Altus paid ONE MILLION DOLLARS to lawyers and Mr Gordon got nothing. Altus is appealing the judgement so the legal costs will presumably keep rising.

The lesson to be learnt from this tragic episode is that there is no rational reason why a plaintiff should not a make a fair and reasonable Rule 49 offer as soon as possible so that the substantial indemnity damages keep rising as the litigation proceeds. This is especially where the defendant  has made no reasonable offers at all and does not intend to ever do so.

When I practiced employment law I would often make a Rule 49 offer at the same time as filing the Statement of Claim if I acted for the Plaintiff, or if I was acting for the Defendant, at the same time as I filed the Statement of Defence.

This practice would insure that, unlike poor Mr Gordon, if I won at trial both the client and I would be appropriately compensated.

Needless to say,  I never billed a client $500,000 for a 7 day trial.