No Mention of Benefits or Severance Invalidates ESA Termination Clause Says Ontario Court of Appeal :

In Wood v Fred Deeley Imports Ltd ( 2017 ONCA 158, Justice Laskin dealt with the important issue of whether an ESA only contract was valid.

The termination clause read as follows:

[The Company] is entitled to terminate your employment at any time without cause by providing you with 2 weeks’ notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph, except for any amounts which may be due and remaining unpaid at the time of termination of your employment. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000. [Emphasis added.]

Laskin J.A. first summarized the jurisprudence on interpreting employment agreements and referred to the following 8  principles.

1. In general, courts interpret employment agreements differently from other commercial agreements. They do so mainly because of the importance of employment in a person’s life. As Dickson C.J.C. said in an oft-quoted passage from his judgment in Reference re Public Service Employee Relations Act (Alberta), [1987] 1 S.C.R. 313, at p. 368:

” Work is one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being.”

2 . As important as employment itself is the way a person’s employment is terminated, it is on termination of employment that a person is most vulnerable and thus is most in need of protection: see Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701.

3. When employment agreements are made, usually employees have less bargaining power than employers. Employees rarely have enough information or leverage to bargain with employers on an equal footing: Machtinger, p. 1003

4. Many employees are likely unfamiliar with the employment standards in the ESA and the obligations the statute imposes on employers. These employees may not seek to challenge unlawful termination clauses: Machtinger, p. 1003

5. The ESA is remedial legislation, intended to protect the interests of employees. Courts should thus favour an interpretation of the ESA that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible”, over an interpretation that does not do so: Machtinger, p. 1003.

6.. Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship: Machtinger, p. 1004.

7. A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Employees should know at the beginning of their employment what their entitlement will be at the end of their employment: Machtinger, p. 998.

8. Faced with a termination clause that could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee: Ceccol v. Ontario Gymnastics Federation (2001), 149 O.A.C. 315, Family Counselling Centre of Sault Ste. Marie and District (2001), 151 O.A.C. 35.

Laskin thereafter dealt with the various attacks on the validity of the ESA clause under these headings :

  1. Failure to provide for benefits during the ESA 8 week notice period.

The failure of the termination clause to actually refer to benefits was fatal. The term ” pay ” in the clause does not clearly include benefits. As this term is at best ambiguous, the interpretation that is to be favoured is the one favouring the employee.

The fact that the Company did in fact continue the Plaintiff’s  benefits after termination is irrelevant as it was an error of law to consider the post termination actions of the employer in interpreting the clause. One can only look at the wording and if it is illegal then the contract is null and void and cannot be used as a way of trying to determine what was  the true intentions of the parties.

Moreover in Roden v Toronto Humane Society the ONCA upheld a clause which did not mention benefits. However in that case the termination clause did not have an ” all inclusive ” clause like the one in this case that stated that :

If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph, except for any amounts which may be due and remaining unpaid at the time of termination of your employment. The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000. [Emphasis added.]

Laskin J. found that this contract language difference was sufficient to distinguish the two cases.

2. Failure to refer to severance pay:

Simply put you cannot require an employee to work out his or her severance pay period by way of working notice. It must be paid as a lump sum within 7 days of the end of the last day of employment. The clause as drafted would have permitted the employer to require the Plaintiff to work out her entire 16 weeks of notice and severance, as she was employed for 8 years.

As this would have been contrary to the ESA, it is illegal .

Laskin J. upheld the trial judges assessment of 9 months reasonable notice. The Plaintiff was 48 years old, worked for 8 years as a Sales & Event planner making $100,000 per year.

This case is refreshingly easy to read and comprehend. It is almost as if Justice Laskin wants the average employer and employee to be able to read and understand it. Remarkable.

His clear listing of the 8 General Principles of Interpretation  of Employment Contracts and his application of those principles  to the facts provide us with a roadmap of how to approach similar cases in the future.

I wish Mr Justice Laskin had been on the  panel in Oudin v Le Centre Francophone de Toronto, Inc. ( 2016 ONCA 514 ). If so, I  doubt that it would have been decided in the way that it was.

Both Justices Feldman and Hourigan concurred with Justice Laskin’s reasons.

In previous blogs I commented that I wished that the Supreme Court of Canada would examine this issue of ESA contracts.

In light of this case, I think that is no longer necessary, at least for Ontario cases.

Court Outlines Procedures for Go Forward Payments in Summary Judgement :

In Holmes v Hatch Ltd ( 2017 ONSC 379 ) Pollak J. awarded 18 months notice to a 54 year old Project Manager and Engineer with 17 years service .

The motion for summary judgement took place only 6 months after the termination of employment so the Court had to deal with how to award damages for the possible future loss.

This is what the Court did:

[33] With respect to the issue of the Plaintiff’s continuing duty to mitigate, I find that the evidentiary record does not allow this Court to make a finding on whether the Plaintiff will have any employment income loss during the balance of the notice period or whether he will successfully mitigate. Even though the Plaintiff has argued that he has not been able to find employment to the date of this motion, he moved for summary judgment knowing that it would be heard before he suffered any loss of employment income. To remedy this difficulty, the parties have advised the Court that they agree to follow the approach the Court has taken in the case of Markoulakis v. SNC-Lavalin Inc., 2015 ONSC 1081 (CanLII), 253 A.C.W.S. (3d) 362.

[34] The Court has determined that the total reasonable notice period for Mr. Holmes is 18 months. It follows that the Defendant has the obligation to pay Mr. Holmes the appropriate monthly compensation for the balance of the 18 month notice period subject to the deductions I have referred to above. The Defendant’s obligation to pay is also subject to the Plaintiff’s obligation to mitigate his damages and to a deduction in the monthly payments by the Defendant for any earnings from employment or a business. If during the balance of the notice period, the Defendant challenges the mitigation efforts or earnings of the Plaintiff and does not make such payments to the Plaintiff, the parties should determine the appropriate procedure for resolving this dispute.

[35] The parties have not agreed to, or provided the Court with, evidence on the amount of compensation Mr. Holmes is entitled to on a monthly basis for damages during the notice period. The Court has therefore only provided the parties with the above-noted legal determination of the duration of the reasonable period.

[36] Partial summary judgment is therefore granted by way of a declaration with respect to Mr. Holmes’ entitlement to 18 months’ damages for wrongful dismissal. The parties did not make any submissions on the procedure to be used if they require adjudication on the remaining potential issues and the calculation of “mitigation and damages”. I therefore make no ruling in this regard.
[37] At para. 78 in Hryniak, the Supreme Court of Canada held that:

Where a motion judge dismisses a motion for summary judgment, in the absence of compelling reasons to the contrary, she should also seize herself of the matter as the trial judge.

[38] In my view, this is an appropriate case for me to follow the Supreme Court’s direction and remain seized of any necessary future proceedings in this matter, such as a trial of the remaining issues. I must, however, qualify this to be subject to the practical reality of our court’s ability to schedule trials in a timely and expeditious manner. I will not be seized of this trial if the effect of my unavailability would be to delay the hearing of the trial between the parties. If it is possible to do so without adverse delay or consequences to the parties, I seize myself of the trial of this matter as directed in Hryniak.

I believe that this is a better approach to deal with the issue of ongoing damages than either the trust method or the discount method for the following reasons :

  1. It best mimics what the law requires, that is paying compensation during the notice period less income earned through mitigation.
  2. It allows Plaintiffs to have actual benefit coverage during the notice period rather than a payment in lieu.
  3. It reduces the gamesmanship involved in setting the date for the motion for summary judgement in that no matter what the date is the duty to mitigate and the effects of mitigation remain the same,

I would however suggest that counsel should have suggested some procedure for adjudicating any future mitigation issues.

The parties could  agree that this issue would be decided either by arbitration or by returning to the motions judge. There should however be a provision that the employer is not allowed to unilaterally cut off the payments if they simply allege a failure to mitigate, rather they should be required to keep up the payments pending the Courts’ or arbitrators’ determination. This will avoid the circumstance of the Employer using the act of withholding payments as a pressure point to negotiate a discounted lump sum for the balance of the notice period. Any payment received by the Plaintiff in excess of what the Court or arbitrator determined was owing could simply be repaid.

The Labour and Employment section of the Ontario Bar Association, back in about 2009, produced a report for Chief Justice Winkler called the OBA Task Force on Wrongful Dismissal . In that report the Task Force had this to say about what they thought should be done about determining the on going payments after a motion for summary judgement.

The Court would assess the plaintiff’s mitigation efforts up to the date of the motion, and if the notice period continues beyond the date of the motion, the Court would, rather than order a lump sum payment of the entire notice period, order a payment to first bring the plaintiff’s wages and benefits up to the date of judgement. Then, the Court would make a further order that the defendant be required to continue to pay the plaintiff his or her salary and benefits to the end of the notice period, subject to the plaintiff’s continuing obligation to mitigate.

 If the plaintiff is to receive payments beyond the date of the motion, then the plaintiff will be required to report monthly, by statutory declaration to the defendant, what his or her mitigation efforts and mitigation income have been. The defendants’ payments would be reduced by any mitigation earnings, on a dollar for dollar basis. If the defendant believed that the plaintiff’s mitigation efforts were not reasonable, it could apply to the Court to amend the order requiring payment. The defendant could not unilaterally suspend the payments before the return date of the motion.

 If there were other issues that required determination, the Court could still order the payment of reasonable notice and order that the other issues be tried. For instance, if the parties agreed that the plaintiff’s base wage was $60,000 per annum but disagreed both on the quantum and the entitlement to a bonus, the Court could order monthly payments of the base wage only and defer the issue of the bonus entitlement to a full trial.

I was on that committee. it was a good idea then . It is still a good idea. I am glad to see that at least Madam Justice Pollak has adopted this procedure. I can only hope that it catches on with the rest of the Bar and Bench.




Reinstatement is the Default Remedy under the Unjust Dismissal Section of the CLC:

In Randhawa v The Bank of Nova Scotia ( HRDSC File # YM2707-10272 , not yet on CanLII ) Adjudicator Lorne Slotnick made these comments about the appropriate remedy in an Unjust Dismissal case under section 242 of the Canada Labour Code.

In my view, where a complaint of unjust dismissal under the Canada Labour Code is upheld, the default remedy must be reinstatement, as it is for unionized employees covered by a collective agreement. This is the clear implication of the Supreme Court’s analysis in the Wilson v. Atomic Energy case, in which the court agreed that the unjust dismissal provisions were meant to give non-unionized non-management employees in federally regulated workplaces “expansive

protections much like those available to employees covered by a collective agreement.” (at paragraph 1.)

Undoubtedly there are exceptions to the general rule that reinstatement will be ordered where the dismissal is found to be unjust. In general, this will be appropriate where the employment relationship is no longer viable. The bank pressed this argument, relying on its view of Ms.

Randhawa’s dishonesty and asserting it has lost trust in her. It referred to several cases where adjudicators have declined to reinstate employees who were found to have been unjustly dismissed. Those decisions predate Wilson v. Atomic Energy. However, in light of the court’s approach in Wilson, damages in lieu of reinstatement must be seen to be appropriate only in exceptional cases, as it is in labour arbitration. (See Alberta Union of Provincial Employees v. Lethbridge Community College, 2004 SCC 28 (CanLII).)

Several factors may be relevant in determining whether the employment relationship is not viable. (They are listed in Re DeHavilland Inc. and CAW (1999) 83 L.A.C. (4th) 157 (Rayner) and in Yesno v. Eabametoong First Nation Education Authority [2006] C.L.A.D. No. 352 (Kaufman).) Here, the bank relies most heavily on its statement that it is unable to trust Ms.

Randhawa because of her conduct in denying breaches of procedure until faced with clear proof.

I agree with the statement in Roda v. Bank of Montreal, a case cited above, that assessing whether the employer would be able to trust a reinstated employee is not a matter of simply accepting the assertions of the employer. The adjudicator in that case put it as follows (at paragraph 25):

In my opinion, determining whether the relationship of trust between the parties can be restored is not a matter of determining whether or not one party subjectively feels that the relationship of trust cannot be restored. Rather the test is an objective one based on tall the evidence to determine whether the relationship of trust can be restored.

Here, I agree with the bank that there is some foundation, based on Ms. Randhawa’s conduct prior to termination and on her evidence at the hearing, to question whether she can be relied on to be forthright when questioned by management if she is returned to a customer service

supervisor position. However, in my view, this factor is not strong enough to conclude that any employment relationship is no longer viable because of dishonesty.

This case once and for all makes it clear that the Unjust Dismissal provisions of the CLC are designed to give collective agreement type termination rights to non-unionized employees. It is not simply a statutory restatement of the common law right to reasonable notice .

I read almost every decision under the Unjust Decision section and I am continually struck by these  facts :

1) Most Complainants and many Employers appear on their own behalf , without lawyers.

2) The overwhelming majority of Complainants do not request reinstatement as a remedy .

3) Instead of reinstatement , the Adjudicators often award monetary compensation which is often much less that even the applicable common law notice period.

In this case Ms Rawdhawa sought reinstatement and got it, granted to a lower rated position because her previous position no longer existed in the Bank.

She also got back pay of about 27 months and substantial indemnity costs for a five day hearing.

This case shows that when properly represented by counsel, this   procedure can be as effective, if not more effective, than court based litigation.


Probationary Employee Gets 3 Months Reasonable Notice :

In Ly v Interior Health Authority ( 2017 BCSC 42 ) Justice Morellato found that a 38 year old manager with just over 2.5 months of probationary service was entitled to 3 months reasonable notice because the employer “did not meet its legal obligation to carry out a good faith assessment of Mr. Ly’s suitability for continued employment.”

The first issue facing the Court was the legality of the probationary clause which stated ” Employees are required to serve an initial probationary term of six ( 6 ) months for new hires.”

The Plaintiff argued that this provision was contrary to the BC Employment Standards Act which requires one weeks notice of termination  for employees who have 3 months service. Since the common understanding of the term ” probation” is that it allows termination  without notice, this provision offended the ESA and was thus invalid.

However this Judge saw it differently.

[50] Absent any express language to the contrary, a probationary term of employment is best understood as part of a contract of employment where: a) the employee is held to the requirement that for a specific period of time that employee must demonstrate certain suitability requirements set by the employer; and b) the employee may be dismissed without reasonable notice (subject to statutory minimums) if he or she does not meet the suitability requirements. If the employee meets the suitability requirements then, after that period of probationary assessment, the employee’s contract continues as a contract of employment wherein the requirements of just cause and reasonable notice apply.

[52] I have concluded that Mr. Ly’s employment comprised an express probationary term of six months duration coupled with the implied term as set out in Jadot: the employer’s contractual right to dismiss a probationary employee without notice and without giving reasons provided the employer acts in good faith in the assessment of a probationary employee’s suitability for the permanent position. However, the common law may be modified by statute and will not imply a term that is contrary to any legislated requirement or entitlement. Accordingly, the statutory entitlement found in ss. 63(1) of the ESA cannot be circumvented or breached by Mr. Ly’s terms of probation. In my view, however, no such breach occurred in the instant case.

[53] The statutory minimum found in ss. 63(1) of the ESA has not been circumvented or breached by Mr. Ly’s terms of probation simply because, as addressed above, there can be no implied contractual right of the employer to circumvent ss. 63(1) during Mr. Ly’s probationary period. The result is that a probationary employee is entitled to the benefits under ss. 63(1) of the ESA during the probationary period. In addition, the existence of the probationary period continues such that suitability also continues to be the standard until the probationary period is completed. In this case then, Mr. Ly was subject to a probationary period, along with the attendant standard of suitability, throughout the course of his short tenure with IHA.

In other words, the Judge interpreted  the meaning of probationary employment as incorporating the minimum statutory requirements of the ESA , so that what the term really meant  was that :

a) In the first 3 months of your employment we can terminate you without any notice .

b) For the balance of the probationary term in excess of three months we can terminate you upon providing you with the statutory minimums under the ESA.

Now if the clause had said something like ” The first 6 months of your employment are probationary therefore you can be terminated without notice at any time in this period” then of course the clause would be contrary to the ESA and thus be invalid. It is only because the probationary clause in this case  did not spell out the specific consequences of termination was the Judge able to read the text as being consistent  with the ESA.

In the secound issue the Judge  very closely examined whether the Plaintiff had been given a good faith assessment of his suitability for continued employment.

The  Judge first stated the legal test for a good faith assessment :

[57] As addressed above, the test for dismissal in the context of probationary employment is suitability. Just cause need not be established. An employer needs only to establish that it acted in good faith in its assessment of the probationary employee’s suitability: Jadot.

[58] In determining whether an employer acted in good faith, courts have examined the process through which the employer determines whether the employee is suitable for permanent employment. While an employer is not required to give reasons for the dismissal of a probationary employee, that employer’s conduct in assessing the employee is reviewed by the court in light of various factors such as:

1) whether the probationary employee was made aware of the basis for the employer’s assessment of suitability before, or at the commencement of, employment;

2) whether the employer acted fairly and with reasonable diligence in assessing suitability;

3) whether the employee was given a reasonable opportunity to demonstrate his suitability for the position; and

4) whether the employer’s decision was based on an honest, fair and reasonable assessment of the suitability of the employee, including not only job skills and performance but also character, judgment, compatibility, and reliability:

In applying the test to the facts , the Judge spent an amazing 27 paragraphs detailing the reasons for concluding that the Plaintiff was not given a reasonable opportunity to demonstrate his suitability for the job.

Among the factors that influenced the Judge was the following:

  1. The Plaintiff had requested in writing, early on, some feedback from his boss on to how he  was doing. Management did not respond to this request.
  2. It was understood from the beginning that there was a steep learning curve to the job and that it would take 6 months to a year to learn the intricacies of the job, however he was fired after only 2.5 months.
  3. A Ms Erickson, one of the people he was now managing, was well liked by the close knit group of employees . Ms Erickson  had acted as the interim manager before the Plaintiff was hired . She  had competed for the manager job, but lost to the Plaintiff. It seemed that the  employees under the Plaintiff staged a ” palace revolt ” and convinced the bosses that the Plaintiff should go, otherwise they might  all quit.  After his termination, Ms Erickson was appointed to the Manager position. The coup succeeded.

One lesson to be learnt in this case is that probationary clauses are of little use.

The better practice is to draft straight forward termination clauses  that allow an employer to terminate an employment relationship without cause upon payment of a easily ascertainable  amount that increases as seniority increases.

If such a clause had been in place in this case, the Court would have no lawful reason to inquire into the “why” of the termination and the parties would have been spared a four day trial.