Frustration of Employment Contract Can be Plead by the Employee or the Employer :

In Hockstra v Rehability Occupational Therapy ( 2019 ONSC 562) Justice Mitchell had a case where the plaintiff had been off on disability for 8 years and had no hope of returning to work. This judgement confirmed that the doctrine of frustration is a matter of law, thus either party can claim that the employment contract has been frustrated.
In most cases the employer wants to rely on frustration, as under the common law, no notice is required. However in this case the plaintiff wanted to rely on the doctrine because upon a finding of frustration he was entitled to both termination and severance pay under the Employment Standards Act of Ontario.

Timing Of Stock Options in Notice Period can Make Huge Difference :

In O’Reilly v Imax Corp ( 2019 ONSC 1239) Justice Faieta found that the plaintiff was entitled to payment for the RSU’s that would have vested over the 24 month notice period. However the issue remained as to when to value those RSUs as presumably the price varied over the period . The Plaintiff said that he would have exercised them as soon as they were vested . The Defendant said that they should replicate what he had done in the past, which was to exercise the RSUs about 13 months after they vested. The judge ruled that the best indicator of what he would have done and he been given reasonable notice was to see what he actually did with the RSU’s that were vested but not sold during the notice period. This led the judge to determine the relevant date as being 5 months from vesting date .

I have two comments:

One : 5 is more or less the midpoint between 0 and 13.

Two: Clearly the value of the RSU’s declined over the notice period. I suspect the legal arguments would have been reversed had the value gone up over the same period.

EI Officer Ruling of No Misconduct Prevents Employer From Alleging Misconduct in CLC Hearing :

In Alexander v Huron Commodities ( 2019 CarswellNat 377) Arbitrator Howard Snow, in a Canada Labour Code Unjust Dismissal case, ruled that the decision of a EI Officer ( which is first level of decsion under the Act) that there was no misconduct acts as an estoppal on that issue in the CLC case. This means that the Employer cannot even  raise the argument of just cause in the CLC proceeding.

Mr Brown found that the three elements of estoppal were proven:

  1. The same question has been decided, that is whether the employee had committed any misconduct.
  2. Whether the decision was judicial and whether it was final.
  3. The  parties were the same in both proceedings.

I have grave concerns about this award:

  1. The decision of the EI officer was made solely on two phone calls, one with the employee and one with the employer. Neither side seemed to know what the other side said to the officer. Of course there was no chance to cross examine the other party or even to refute the other side. How could this ever  be characterized as a ” judicial decision ?
  2. What if it went the other way? What if the employee, acting on his own with no legal knowledge were to fail to tell the EI officer an important fact. Should he or she be denied access to a completely different legal process because of this lay person error? I have actually appeared as counsel on various EI matters and the level of “evidence ” that even the Board of Referees ( the appeal level from the EI Officer ) is well below the level of any court or administrative tribunal. In my experience,  the Board of Referees will consider as “evidence” the notes taken by the EI officer of a conversation with a HR representative of the Employer who is relating what some manager told him or her. This is at best double hearsay. This again shows that this is not a judicial decision .
  3. Prior to this case, rulings of EI Board of Referees have been found to create valid estoppal arguments in civil cases of wrongful dismissal. This led to the common practice of most employers and many employees  to not appeal cases from the officer level so as to avoid being stuck with an adverse ruling . This is especially important for employers because they actually have no financial stake in the outcome of a EI case. Now however, both parties take a huge risk if they even talk to the EI Officer because an adverse ruling could have a huge effect on future legal proceedings.

Therefore employers should be advised not to even talk to EI officers as there is no upside at all to doing this and it can only worsen their position later on. Employers have a statutory duty to fill out an ROE, but I don’t believe that they have such legal duty to even talk to an EI Officer.

Employees are in a much  worse bind. If the employer alleges ” Dismissal” on the ROE and provides some  evidence  to the officer, but the employee refuses to participate in the process to avoid the estoppal argument, the employee will likely  lose their entitlement to EI, creating even more economic pressure on the dismissed employee to settle with the employer on a unfavourable basis.

One can only hope that no court or other adjudicators will follow this non-binding decision.

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 making $195K 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.

“Pursuant to the ESA ” Not Good Enough To Oust the Common Law of Reasonable Notice :

In Movati Athletic ( Group) Inc v Bergeron ( 2018 ONSC 7258) the Divisional Court heard an appeal regarding the following termination clause :

Movati Athletic Inc. may terminate your employment without cause at any time during the term of your employment upon providing you with notice or pay in lieu of notice, and severance, if applicable, pursuant to the Employment Standards Act, 2000 and subject to the continuation of your group benefits coverage, if applicable, for the minimum period required by the Employment Standards Act, 2000 as amended from time to time.

The Analytical Process :

What is interesting about this case is that the Court sets out in detail the issue how you go about analyzing whether a ESA contractual provision rebuts the presumption of common law entitlement to reasonable notice. This is what they say :

The steps to be followed in determining whether a contractual provision can rebut common law notice are as follows:

1.      All contractual provisions must meet the minimum notice requirements for termination without cause set out in the ESA: Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC)[1992] 1 S.C.R. 986[1992] S.C.J. No. 41, at p. 998;

2.      There is a  presumption that an employee is entitled to common law notice upon termination of employment without cause;

3.       Provided minimum legislative requirements are met, an employer can enter into an agreement to contract out of the provision for reasonable notice at common law upon termination without cause: Nemeth v. Hatch Ltd., 2018 ONCA 7 (CanLII), 287 A.C.W.S. (3d) 291 (Ont. C.A.) at para. 11 citing Machtinger at pp. 1004-1005;

4.      The presumption that an employee is entitled to reasonable notice at common law may be rebutted if the contract specifies some other period of notice as long as that other notice period meets or exceeds the minimum requirements in the ESA: Machtinger supra, at p. 998;

5.      The intention to rebut the right to reasonable notice at common law “must be clearly and unambiguously expressed in the contractual language used by the parties”: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII)134 O.R. (3d) 481, at para. 40;

6.      The need for clarity does not mean a specific phrase or particular formula must be used, or require the contract to state that “the parties have agreed to limit an employee’s common law rights on termination”. The wording must however, be “readily gleaned” from the language agreed to by the parties: Nemeth at para. 9;

7.      Any ambiguity will be resolved in favour of the employee and against the employer who drafted the termination clause in accordance with the principle of contra proferentum: Miller v. A.B.M. Canada Inc., 2015 ONSC 1566 (CanLII)27 C.C.E.L. (4th) 190, at para. 15 (Div. Ct.); Ceccol v. Ontario Gymnastic Federation (2001), 2001 CanLII 8589 (ON CA)55 O.R. (3d) 614 (C.A.), at para. 45; and

8.      Surrounding circumstances may be considered when interpreting the terms of a contract but they must never be allowed to overwhelm the words of the agreement itself: Sattva at para. 57.

Why the Clause is Unenforceable:

Applying those above  principles the Divisional Court found that the ESA clause was not enforceable for the following reasons:

  1. [36]           The words “pursuant to the ESA” may be interpreted to mean that the notice period in the termination clause complies with the minimum requirements in the legislation, but they do not clearly provide that reasonable notice at common law no longer applies.
  2. The contract must be read as a whole. In this case the parties used different language in the probationary clause  than they did in the termination clause. The fact that they used different language for different clauses means that they desired different results . In the probationary clause they were careful to use the words ” only ” and “minimum ” whereas in the termination clause they used ” pursuant to the ESA “
  3. The judge found that there was ambiguity in the termination clause:

[45]           The words in this termination clause provide that “the notice provision” is “pursuant to the Employment Standards Act” and group benefits coverage payments must be in accordance with the “minimum period required by the Employment Standards Act”.  Read together, the minimum period required by the ESA could refer to both the notice provision and the group benefits coverage, or only to the group benefits coverage.

[46]           The rule of contra proferentum provides that, where there are two plausible interpretations, the courts should prefer the interpretation that grants better rights to the employee, who did not draft the provision:  Wood at para. 28.

4.  The trial judge said that the situation would have been different if the clause had used the word “only” as that would have brought home the concept that the employee would only get his ESA minimums and not any common law entitlements.

The Divisional Court noted that ” there is no requirement at law to include a warning sign in a termination clause. ”

The judgement notes that the parties agreed that the ESA clause complied with the ESA, however the Court found that it did not sufficiently rebut the common law term of reasonable notice .

I disagree that this clause complies with the ESA for the following reasons :

  1. The clause is applicable to terminations without cause. Presumably that means that for terminations with cause the employee gets zilch. The ESA  has a different and higher standard which is ” an employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer ” ( see ESA Reg 288/01 sections 2(1) 3 and 9 (1) 6 ) . This makes the clause illegal as it offers less than the ESA . In other words an employee can be terminated at common law for just cause and not receive any reasonable notice but still be entitled to their ESA minimums.
  2. Vacation pay is payable on termination pay but not on severance pay. The clause makes no reference to that separate entitlement and by not requiring this to be paid , it pays out less than the ESA, thus the clause is illegal.

I note that neither of these arguments have been been yet adjudicated upon by the Courts.


OCA Says Shares Held by Employee Valued at Date of Termination, Not End of Notice Period :

In Evans v Paradigm Capital ( 2018 ONCA 952) the Court had a situation where the plaintiff held private shares in the defendant which, pursuant to a shareholders agreement, were deemed to be sold back to the defendant upon termination of employment. From time to time the defendant would issue bonuses to shareholders, which I assume were like dividends. The trial judge awarded the plaintiff the bonuses that would have been paid to her had she been employed during the 11 month notice period that was awarded.

The appeal court said no way. Citing Love v Acuity ( 2011 ONCA 130) they held that the proper date for valuing shares that the employer had the right to repurchase upon termination was the actual date of termination, not the end of the notice period. The Court seemed to assume that it would be unfair to give the Plaintiff her return of share capital immediately and also give her the bonuses over the notice period without her capital being at risk .

I think that this is wrong.

The plaintiff is entitled to be in the same economic position as if she had been permitted to work through the notice period. Only at the end of the notice period should  she get her capital back and thus she should get whatever dividends would have been paid to her ( and was paid to other shareholder who fired her).

Now the OCA has created an difference between a employee who has stock options ( these will generally continue during the notice period ) and the employee who actually owns shares that are subject to redemption upon termination.

Both of these mechanisms are part of an employee’s total compensation. Why should they be treated so differently upon a wrongful termination?

There is only one rational reason that I can think of for making this distinction.

If one owns stock options and the strike price is below water throughout the notice period, then the lost options are worthless.

However if the market  price exceeds the strike price, then  once you determine the notice period and assume that the employee would have exercised the options and sold the underlying shares immediately, the calculation of the loss is simple.  You  calculate the difference between the strike price and the price on the day of sale and that is the measure of damages.

If the employee holds the stock and the repurchase price is set at the end of the notice period, then the parties position on the appropriate notice period may be driven not by the Bardal factors but by the share price on a given day .

Imagine a stock whose price fluctuates significantly from day to day. Since the notice period is determined by the Court well after the event, if the stock price dropped 50% from month 6 to month 9 , the plaintiff would be arguing for the shorter  notice period and the defendant for the longer period.

In the current case, if the share price had dropped from date of termination to the end of the notice period and no dividends were paid, then the parties would have reversed their arguments.

In other words, for purposes of commercial certainty and legal predictability, it may make sense to treat stock options differently than stocks held by the employee that are subject to repurchase upon termination of employment.