In Wilds v. 1959612 Ontario Inc., 2024 ONSC 3452 , Justice Vermette dealt with the following termination clause :
Although it is difficult to contemplate ending our relationship when it is just beginning, it is mutually beneficial to determine our respective obligations ahead of time. This Agreement can be terminated prior to the expiration of the term set out above in any of the following circumstances:
[…]
(c) Termination Without Cause: We may terminate your employment at any time and in our sole discretion by providing you with written notice and/or pay in lieu of notice. The notice / pay in lieu to be provided will be two (2) weeks plus any applicable notice and severance requirements in accordance with the Employment Standards Act, 2000 (the “Severance Period”).
If pay in lieu of notice is provided, you will receive only your base salary and employment-related health and dental benefits for the applicable period, save and except for short-term disability, long-term disability, and which will not continue beyond the statutory notice period or as required by applicable employment standards legislation.
You have an obligation to take all reasonable steps to mitigate the loss of your employment. Your obligation includes an obligation to accept reasonable alternate work offered to you if your position with the Organization ends.
If you obtain alternative employment (or otherwise commence earning income in lieu of working for the Organization) before the expiry of the Severance Period, the payments will end immediately and the Organization will pay you the equivalent of 50% of the amount owed from the date you commence alternative employment (or otherwise commence earning income in lieu of working for the Organization) and the expiry of the Severance Period, provided that you will never receive less pay in lieu of notice (and severance pay, as applicable) than you are entitled to under the employment standards legislation applicable to your employment.
You agree to immediately advise the Organization when you receive an offer of employment, commence alternative employment (or otherwise commence earning income in lieu of working for the Organization).
You agree that in exchange for the notice and/or pay set out herein, you will execute a Full and Final Release, in a form acceptable to the Organization, pursuant to which you will agree to waive any and all claims relating to your employment with the Organization or the termination thereof.
[…]
(e) 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, other than any notice, pay in lieu of notice or severance required pursuant to the applicable employment standards legislation. For the purposes of this Agreement, just cause includes, but is not limited to:
(i) a material breach of this Agreement or our employment policies;
(ii) unacceptable performance standards;
(iii) theft, dishonesty or falsifying records, including providing false information as part of your application for employment;
(iv) intentional destruction, improper use or abuse of Organization property;
(v) violence in the workplace;
(vi) obscene conduct at our premises, property or during Organization-related functions at other locations;
(vii) harassment of your co-workers, supervisors, managers, customers, suppliers or other individuals associated with the Organization;
(viii) insubordination or willful refusal to take directions;
(ix) intoxication or impairment in the workplace;
(x) repeated, unwarranted lateness, absenteeism or failure to report for work;
(xi) personal or off-duty conduct (including online conduct) that prejudices the Organization’s reputation, services or morale; or
(xii) any conduct that would constitute just cause pursuant to common law.
It is intended that this termination provision includes any entitlements you have pursuant to the Act. In the event that your entitlements pursuant to the Act exceed these contractual provisions, those statutory provisions shall replace these contractual provisions and no further payments are required. You agree that the provision of notice, pay in lieu, or a combination of both as set out above will fully satisfy all obligations of the Organization to you, whether arising pursuant to statute, common law or otherwise, and that you will have no further entitlement to notice, pay in lieu, or severance arising out of your employment or the termination thereof. To be clear, these provisions replace any common law entitlement that you would otherwise have.
The Court found that this termination clause was invalid for a number of reasons :
[63] There are many problems with the termination provisions. Among others:
a. The termination without cause provision states that if pay in lieu of notice is provided, Ms. Wilds “will receive only [her] base salary and employment-related health and dental benefits for the applicable period”. As stated above, pursuant to section 60 of the ESA, an employer cannot reduce wages or alter any other term or condition of employment during the notice period. Employees are entitled to their regular wages and the continuation of all employee benefits. Pursuant to section 61, where an employee is provided with termination pay in lieu of notice, they must receive all entitlements required by section 60, which includes all wages and benefits without reduction or alteration. See Groves v. UTS Consultants Inc., 2019 ONSC 5605 at para. 56(“Groves”). The termination provision in this case, which only uses the “base salary” to calculate the pay in lieu of notice as well as health and dental benefits, does not include vacation pay, bonus and the other benefits that Ms. Wilds was entitled to under the Employment Contract, i.e., life insurance and accidental death and dismemberment insurance. This constitutes a breach of sections 60 and 61 of the ESA (read in conjunction with sections 1(1) and 57). See Groves at para. 57.
b. The termination without cause provision requires that Ms. Wilds execute a full and final release in a form acceptable to Gibson in exchange for pay in lieu of notice. The employer’s obligation to provide the ESA entitlements is not contingent on the execution of a release or anything else. Making the employer’s compliance with the ESA subject to the execution of a release violates the ESA, notably section 54.
c. The termination with cause provision contains categories of “just cause” for termination without notice that fall short of the statutory exemptions set out in the Regulation, i.e., they include instances where the employee would not necessarily have done something deliberately, knowing that they were doing something wrong. For example: “a material breach of this Agreement or our employment policies”; “unacceptable performance standards”; “repeated, unwarranted lateness, absenteeism or failure to report for work”; “personal or off-duty conduct (including online conduct) that prejudices the Organization’s reputation, services or morale”; and “any conduct that would constitute just cause pursuant to the common law”. See Perretta v. Rand A Technology Corporation, 2021 ONSC 2111 at paras. 44-45 (“Perretta”).
The first paragraph of the termination with cause provision contains the following words: “other than any notice, pay in lieu of notice or severance required pursuant to the applicable employment standards legislation”. In my view, these words are insufficient to save the termination provision. Among other things, these words are immediately followed by categories that clearly do not comply with the ESA and the requirement for deliberate conduct. As was the case with the termination provision in Perretta, the termination provision in Ms. Wilds’ Employment Agreement states that it is subject to the ESA, but the inclusion of a number of categories of “just cause” flies in the face of the ESA. At a minimum, this creates confusion and ambiguity. As stated in Perretta, 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, it must be read in a manner that provides the highest benefit to the employee. Here, the ambiguity must be resolved in favour of Ms. Wilds by finding that the termination with cause provision violates the ESA. See Perretta at paras. 54-56.
[64] The last paragraph of section 15.1 of the Employment Agreement is a “saving provision”. For convenience, I reproduce this paragraph again:
It is intended that this termination provision includes any entitlements you have pursuant to the Act. In the event that your entitlements pursuant to the Actexceed these contractual provisions, those statutory provisions shall replace these contractual provisions and no further payments are required. You agree that the provision of notice, pay in lieu, or a combination of both as set out above will fully satisfy all obligations of the Organization to you, whether arising pursuant to statute, common law or otherwise, and that you will have no further entitlement to notice, pay in lieu, or severance arising out of your employment or the termination thereof. To be clear, these provisions replace any common law entitlement that you would otherwise have.
[65] Gibson’s attempts to contract out of the ESA in the termination provisions cannot be saved by this paragraph: see Perretta at para. 58. This paragraph cannot reconcile the parts of the termination provisions that are and have been in direct conflict with the ESA from the outset. See Rossman at paras. 35, 40-41. The statement at the beginning of the paragraph that the intention of the termination provisions is to include any entitlement that the employee has pursuant to the ESA is contradicted by clear violations of the ESA in the termination provisions. Such language creates ambiguity and confusion for an employee and does not constitute clear wording that allows an employee to know at the beginning of their employment what their entitlement will be at the end of their employment. In my view, the termination provisions in the Employment Agreement were not drafted with strict compliance with the ESA as their main objective. See Waksdale at para. 7.
[66] In support of its position that the termination provisions in the Employment Agreement comply with the ESA, Gibson relies on Kielb v National Money Mart Company, 2015 ONSC 3790 (“Kielb SCJ”); aff’d 2017 ONCA 356 (“Kielb CA”). In addition to having been decided before key decisions of the Court of Appeal referred to above, this case involved a termination clause that was structured differently than the one before this Court. In Kielb SCJ, the ESA entitlements were clearly maintained in the first part of the termination clause, and the requirement for a full and final release only applied to any additional payments made by the employer. See Kielb SCJ at paras. 9, 14, 60 and Kielb CA at para. 11. In the present case, the termination provisions do not ensure in clear and unambiguous language that Ms. Wilds’ statutory entitlements under the ESA would be paid. Further, the requirement for a full and final release is not limited to payments over and above Ms. Wilds’ statutory entitlements under the ESA.
[67] Burton v. Aronovitch McCauley Rollo LLP, 2018 ONSC 3018, another case relied upon by Gibson, is also distinguishable. Like in Kielb SCJ, the termination clause in that case maintained the ESA entitlements and did not attempt to reduce them, for instance, by limiting the pay in lieu of notice to base salary and some (but not all) benefits.
[68] In light of the foregoing, I conclude that the termination provisions of the Employment Agreement, read as a whole, violate the ESA. Therefore, they are unenforceable and do not rebut the presumption that Gibson cannot terminate Ms. Wilds’ employment without giving her reasonable notice under the common law: see Waksdale at para. 10 and Rossman at para. 17.
My Comments:
This case provides a useful checklist of things to look for or avoid when writing or attacking termination clauses.
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