OCA Upholds ESA Related Termination Clause:

In Nemeth v Hatch ( 2018 ONCA 7) the Court was faced with the following termination clause:

The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.

The Court decided that this clause was not ambiguous. This is what they said :

[14]       It is clear from the plain language of the termination clause in the present case that the parties intended and agreed to limit the appellant’s common law notice entitlement. The clause clearly “specifies some other period of notice” that meets the minimum entitlements prescribed under the ESA:  it contemplates the appellant receiving “one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.” It cannot be said that the appellant retained his common law entitlements in the face of this explicit language, which denotes an intent to the opposite effect.  I agree that there is no ambiguity that the parties intended and agreed to displace the appellant’s common law notice entitlement. Whether they agreed to limit it to the minimum entitlements under the ESA is a question to which I return later in these reasons.

With all due respect to the Court, I suggest that it is not clear what the intentions of the parties were, for the following reasons:

  1. The Defendant took the position that the clause only required them to provide 8 weeks notice ( the ESA maximum notice ) notwithstanding that the Plaintiff had 19 years service. The trial judge agreed with that position. However the Court of Appeal held that he was entitled to 19 weeks notice under that clause, in effect saying that the Plaintiff was entitled to the greater of the ESA entitlement or one week per year of service with a minimum of 4 weeks. So, tell me, how can the clause be unambiguous, and therefore ” clear from the plain language “, when one judge sees it one way and another 3 judges see it another way?
  2. The clause makes no sense because the phrase stating ” or the notice required by the applicable labour legislation” could never apply. If the person had 1, 2 or 3 years service, then the contractual minimum of 4 weeks exceeds the ESA minimums. If they had 4,5,6,7, or 8 years service the ESA amount would equal the  contactual amount. If they had more than 8 years service, then the contractual amount would always exceed the ESA amount. How then can a clause which makes no internal sense and contains useless language be clear and unambiguous?
  3. The Clause refers to ” applicable labour legislation”. The Court assumed that the parties must have intended to  refer to the Employment Standards Act . Why not the Labour Relations Act? Why not the Employers and Employees Act? Why not the Employment Protection for Foreign National Act? Why not the Human Rights Code? Why not the Occupational Health and Safety Act? Get my drift?

In the book ” Ontario Labour and Employment Legislation 2016 ” by Thomson Reuters there are 15 statutes listed. How is Mr. Nemeth, the plaintiff supposed to know which sections of which Act are being incorporated into his employment contract. The above mentioned book requires 1360 pages to set out these statutes.

If one does a search in CANLII for “Ontario -Legislation -Labour “, you get 17 hits , but the ESA does not appear in that search.

I did a word search in the ESA for the word “labour” . I got 29 hits. They all referred to either the Labour Relations Board, a labour officer, Labour Day, the Ministry of Labour or the Canada Labour Code. Not a single reference to ” labour ” let alone ” applicable labour legislation ” in any section relating to the termination of employment.

Even a cursory review of the ESA shows you that there are numerous provisions in the Act that you would have to know in order to truly understand what the termination provisions of the ESA actually cover. To think that poor Mr. Nemeth was aware of all of this, let alone that he knew that he was actually giving up  a right to reasonable notice, (which he probably did not even knew he had), is unrealistic.

However, to this panel of the Court of Appeal, it was ” clear” what the parties intended.

The reference to ambiguity voiding a termination provision comes from a earlier Court of Appeal decision called Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158,

In  that decision Laskin J. sets out 8 Guiding Principles to be used in examining these types of clauses. I have summarized them as follows:

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.

I would respectfully submit that the Court of Appeal panel in this case did not give adequate consideration to  Guiding Principles 4, 7 and 8.

This panel also dealt with the issue as to whether or not the fact that the clause did not reference severance pay that it fell afoul of the ESA. However citing Laskin’s reasoning in Wood on how Roden v Toronto Humane Society , they decided as follows:

(ii)         Is the termination clause void because it purports to contract out of the ESA?

[15]       With respect to the second argument, I do not accept that the silence of the termination clause concerning the appellant’s entitlement to severance pay denotes an intention to contract out of the ESA. I agree with the motion judge’s conclusion that the termination clause purports to limit notice but not the severance pay that the appellant would receive on termination. This is a very important distinction.

[16]       As such, this case falls within Roden v. Toronto Humane Society (2005), 259 D.L.R. (4th) 89 (Ont. C.A.), and is entirely distinguishable from Wood, for the reasons noted in the latter by Laskin J.A., at paras. 53 to 55:

53      In Roden, the termination clause in issue stated that the employer, The Toronto Humane Society, could terminate the employment of the plaintiff Roden “upon providing the Employee with the minimum amount of advance notice or payment in lieu thereof as required by the applicable employment standards legislation”: see para. 55. Roden made the same argument as Wood: the termination clause contravened the ESA and was void because it failed to include The Toronto Humane Society’s obligation to continue its contributions to Roden’s benefit plans during the notice period.

54     Gillese J.A., writing for the panel, rejected this argument. In her view, the termination clause was simply silent about The Toronto Humane Society’s obligation to continue to contribute to Roden’s benefit plans. The clause did not contract out of an employment standard and thus was not void. She wrote, at para. 62:

The without cause provisions in question are of precisely the type that Iacobucci J. says are valid: they referentially incorporate the minimum notice period set out in the Act. The without cause provisions do not attempt to provide something less than the legislated minimum standards; rather, they expressly require the Society to comply with those standards. As I have said, in my view, the provisions do not purport to limit the Society’s obligations to payment of such amounts. That is, they do not attempt to contract out of the requirement to make benefit plan contributions. Because the contracts are silent about the Society’s obligations in respect of benefit plan contributions, the Society was obliged to –  and did – comply with the requirements of the Act in that regard.

55     The difference between Roden and this case lies in the wording of each termination clause. In Roden, the clause dealt only with The Toronto Humane Society’s obligation to give the notice of termination, as required by the ESA, or to pay Roden a lump sum for the notice period. It did not exclude The Toronto Humane Society’s additional obligation to continue to contribute to Roden’s benefit plans during the notice period. It said nothing about that obligation.

[17]       As a result, I am of the view that the termination clause in this case does not provide less than the minimum severance obligations under the ESA, and is not void pursuant to s. 5(1).

I agree that when the Court of Appeal pronounces on a relevant legal issue it is binding on the Courts, even other panels of the Court of Appeal ( unless the new panel has 5 judges, which this did not ) .

However this rule does not apply where the comments being relied upon are not relevant to the outcome of the case, what we common law lawyers call ” obiter dictum” .

This is the classic definition of obiter dictum that we all learnt in law school:

A judge’s expression of opinion uttered in court or in a written judgement, but not essential to the decision and therefore not legally binding as a precedent.

In the Roden case the actual issue in dispute was whether or not the employer had just cause for termination. The trial judge held that there was just cause. The Court of Appeal upheld that finding of just cause.

The comments by the Court on the enforceability of the contract therefore were neither relevant or necessary with respect to the outcome of the case. This is classic obiter dicta, which is not binding on other Courts.

From what I can tell about this issue, neither the Court of Appeal in Wood nor in this case were made aware of this obiter dictum argument in relation to the Roden comments.

Since Wood purports to believe that it had to follow Roden,  and Nemeth seems to believe that it had to follow Wood, if in effect the Roden comments  were not precedent setting, then could a future trial judge ignore Roden and decide that that the clause is unenforceable given the 8 Guiding Principles in the Wood decision?

Only time will tell .


21 Years at Company A Plus 1.7 Years at Company B = 10 Months Notice

In Toole v Northern Blizzard Resources ( 2017 CarswellAlb 2692) Master Robertson had a situation where an employee of 21 years was recruited by a headhunter to join  the defendant. The job requirement was that the person have at least 10 years experience in the field. He was let go by the defendant after only 19 months due to an economic downturn.

This is what the Master had to say about the concept of inducement as it affects the notice period;

[20]           The nature of the recruitment, using a recruiter (rather than relying on advertisements in a newspaper, other periodicals, or online), suggests that Northern Blizzard intended to recruit someone who already had employment.  In early 2014, it would have been unlikely, given the minimum 10 years’ experience that it was instructed to seek, that the recruiter would be looking at an employee who did not currently hold a secure position.  In fact, when the recruiter identified Mr. Toole, management decided that he was their first choice, and management knew that he had 21 years’ experience.

[21]           The concept of “inducement” of an employee to leave secure employment involves a spectrum of facts.  At one end is an employee who is already on working notice when he or she is contacted by a recruiter.  That employee would be very motivated to pursue the opportunity, because his or her job is not secure.  At the other end of the spectrum is an employee who is securely employed and not interested in leaving for a new job until the recruiter offers some specific inducement, such as a signing bonus, more valuable benefits, or a better salary.  Most cases are somewhere along the spectrum.

[22]           Mr. Toole was 48 years old when his employment was terminated at Northern Blizzard.  His job title was Senior Development Engineer, and that was a relatively senior position within the company.  He had no reports, but he worked in a relatively niche position in the upstream exploration and development subset of the oil and gas industry.  It was his specialty.  That was what Northern Blizzard wanted; they also wanted someone with some significant experience in the area.  That is why they hired Mr. Toole.

[23]           Mr. Toole was not being hired to work on project work, which is inherently volatile as projects are completed and new ones are started, or not.  His area of work was more stable in nature – that’s why he remained at Devon for 21 years – and long service at Northern Blizzard would have been expected by both parties.

[24]           One of the Bardal factors is length of service, and it often is the single most important factor in assessing “reasonable notice”.  However, in the circumstances of this case it is only a small factor.  When the employer knows that the individual has given up a long-term position – and was recruited for that factor – the actual length of service at the new job becomes only one of several factors to be considered in assessing the reasonable notice period.

[25]           In my view, the facts here suggest that Mr. Toole’s secure employment at Devon should be taken into account, but not to the point that he should be treated as an employee with imputed service of 24 years.  Rather, it is a factor that tends to militate in favour of a somewhat elevated notice period.  It related to their mutual understanding – that he was giving up a secure position and was being hired to a secure position, but with no express promises of just how secure it was.

He awarded 10 months notice.

He also commented on some significant bonus issues. The plaintiff was terminated in December. The bonus was payable the following March.

The bonus plan had the following clause :

You will be eligible to receive an annual bonus.  The annual bonus pool is determined by the Board of Directors and created by achieving corporate targets.  Payment of the 2014 bonuses will be calculated based on achieving corporate targets (50%) and on individual performance (50%).  Annual bonuses are paid in March of the following year and you must be a current employee of Northern blizzard to receive your bonus payment.

The Employer made the usual argument that bessie he was not an employee at the time of the payout he was not entitled to a payout.

The Master had this to say about that argument:

In my view this misses the point: the claim is not for the bonus, but for damages for the loss of the opportunity to earn the bonus, just as the claim is not for the salary that he would have earned, or the benefits he would have enjoyed, but rather for damages for them not being provided because the employer breached his contract of employment because it did not give him reasonable notice of termination.  The only reason he was not a current employee in March 2017 is because Northern Blizzard breached the contract by dismissing him without giving him reasonable notice. This is discussed in Lalonde v Sena Solid Waste Holdings Inc, 2017 ABQB 374 (CanLII) at paragraphs  54-56, citing  Sylvester v British Columbia,1997 CanLII 353 (SCC), [1997] 2 S.C.R. 315 (S.C.C.) and Paquette v TeraGo Networks Inc, 2016 ONCA 618 (CanLII) and other cases.

But the Plaintiff also claimed a pro-rata share of the next years bonus to the end of the notice period. This is what the Master said :

[39]           In addition to the opportunity to receive a bonus in March 2107, the plaintiff claims a pro-rated bonus for those months of 2017 that he would have worked had he been given reasonable notice.  However, this argument would only have traction if the period of reasonable notice would have extended his deemed notice period past March of 2018, and if it did then it would not be pro-rated.  That would be at least 16 months’ of reasonable notice, and his claim does not extend that far. 

[40]           He is not entitled to damages for a lost “2017/payable in 2018” bonus.

Now the kicker. Having found that the Plaintiff was entitled to the bonus that he would have earned had he been allowed to work until the March payout, that number would have been ZERO, because the Defendant ended up having a terrible year and no bonuses were paid out at all.

The Plaintiff said that he should have been paid out the bonus based on prior years performance because his case had crystallized at that point and the actual events following his termination should be ignored.

The Master had no trouble dismissing that argument :

[43]           The concept that the amount of the damages are “crystallized” in this sense is not consistent with the assessment of damages in contract  and tort claims alike.  Courts virtually always look at subsequent events to assess damages.  A victim of a personal injury may have a cause of action in negligence immediately following the injury, but the quantum depends on the extent of the injury, the extent of the recovery, the pace of recovery, lost wages, special damages subsequently suffered, and other factors.  A landlord whose tenant leaves before the lease has expired has a claim for breach of contract for lost rent and occupancy costs but that claim is affected by mitigation efforts, costs and success, and the actual occupancy costs claim that becomes payable after the breach.  A claim for breach of confidence by an employer against a former employee is assessed based on the actual damages suffered, not on a speculative and theoretical estimate of what might happen if the release of the employer’s secrets leads to damages.

[44]           And in a wrongful dismissal claim, the assessment takes into account mitigation and other post-termination factors.  A long-term senior employee who otherwise has a claim for 24 months’ compensation, but who finds a replacement job at comparable compensation only two months later has a claim for two months’ compensation (technically it may be described as a claim for 24 months’ compensation less twenty two-months’ credit for mitigation).

[55]           In a wrongful dismissal claim, there are many questions that must be asked to allow a proper assessment of damages.  Did he find a job?  What is the compensation for it?  Did he refuse to try to mitigate his damages by looking for work when it should have been available?  Did he incur costs in his attempts at mitigation?  Was he able to replace his group benefits at no or little cost by being added to his wife’s benefit plan with her employer?  Did he need dental work that was no longer covered by a dental plan and exceeded the premiums paid for the benefit?   Did he die or become disabled without life or disability insurance during the reasonable notice period, after his entitlement to the group insurance coverage was cancelled?  One can imagine all sorts of post-termination events that inform the assessment of damages.

[56]           In my view, his expectation should be given the proper assessment that it deserves, which is that when March came and went, there was no bonus for anyone.  His damages on that point are the loss of the opportunity to be paid his share of that amount, which was zero.

In other words, when looking at a bonus issue the very first question to ask oneself is:

Assuming that the Plaintiff had been at work at the payout date what would he have received, or what did his peers get as a bonus ?

If the answer is zero or minimal, forget the bonus issue and focus on the notice period.


Div Ct Overturns $7,500 in Mental Distress Claim While SC Awards $250,000 for Similar Behaviour:


In Thambapillai v Labrash Security Services ( 2017 CarswellOnt 19618 ) the Ontario Divisional Court overturned an award of $7,500 given to a 71 year old security guard making $24,000/ year . One of the reasons that the award was given initially  by the trial judge was because the uncertain nature of the termination notice ” left him hanging in the wind for some seven months before his abrupt termination”. The Court did not think that warranted any damages for mental distress.

However the Superior Court in Galea v Wal-Mart Canada ( 2017 CarswellOnt 245) the Court awarded $250,000 in aggravated damages for just such behaviour. In that case Walmart left the Plaintiff, ( a senior executive making hundreds of thousands of dollars)  ” drifting in the wind for almost a year ” from the time they told her that she was being removed from her position until they actually let her go, which was aproximately one year.

In neither case was there any medical evidence presented as to the Plaintiff’s medical condition

.It is difficult how such similar fact situations could result in such different legal outcomes.