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

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

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

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

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

This is what the Judge said :

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

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

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

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

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

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

My Comments:

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

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

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