Ontario Superior Court applies Waksdale Decision to Invalidate Termination Provision
In Sewell v. Provincial Fruit Co. Limited, 2020 ONSC 4406, the plaintiff brought a motion for summary judgment to determine the notice payable because of his termination.
The plaintiff had signed an employment contract which included the following termination clause:
- b) Termination by the Company for Just Cause
The Company is entitled to terminate your employment at any time and without any notice or any further compensation for just cause and the Company will not have any further obligations to you whether at contract, under statute, at common law or otherwise.
- c) Termination by the Company without Just Cause
(A) The Company will be entitled to terminate your employment at any time without just cause by providing you with the following:
. . .
(ii) a payment, or at the Company's sole option, notice or combination of notice and pay in lieu of such notice representing termination pay and, if applicable, severance pay, as may be required under the Employment Standards Act, 2000, as amended from time to time (the "Separation Period");
The motions judge found that the employment contract violated the minimum standards set out in the Employment Standards Act, 2000 (the “ESA”) and was therefore unenforceable. In doing so, Justice Mandhane applied the Court of Appeal’s decision in Waksdale v. Swegon North America Inc. The Court found that the “for cause” termination provision violated the ESA by contracting out of the requirement to provide notice except in cases where the employee engaged in willful misconduct.
This is a relevant decision given that in Waksdale, counsel had conceded that the “for cause” termination provision violated the ESA.
The Court also found that the termination clause combined notice and severance pay entitlements in violation of the ESA, noting that the clause in question was “substantially similar” to the one found unenforceable by the Ontario Court of Appeal in Wood v. Fred Deeley Imports Ltd.
For my part, I find the Court’s findings with respect to the combination of notice and severance pay entitlements confusing. In Wood, the clause read:
[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... The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay.
On its face, the clause in Wood expressly combined notice and severance pay within the two 2 weeks’ notice. The clause in Sewelll appears to separate reasonable notice (or pay in lieu therefore) from severance pay, which is only payable “if applicable” and “as may be required under the ESA” (i.e. in a lump sum).
One thing is certain: Confusion continues to abound when it comes to the enforceability of termination provisions. Unfortunately, this uncertainty creates challenges for both employers and employees.
Frequently Asked Questions
I was just let go "without cause". What does this mean?
Prior to engaging in any litigious action, clients should have a grasp of not only their rights but those of the employer as well. What may not appear fair, maybe either contractually or legally legitimate. The term "without cause" is seen in most termination letters. There's a very clear reason for this.
The threshold for cause is high and, if the employer is unsuccessful in meeting that threshold, they then risk being subject to damages for wrongful termination inclusive of not only proper notice, but aggravated and punitive damages as well.
A prime example of this risk coming to fruition is seen in Ruston v. Keddco MFG. (2011) Ltd., 2019 ONCA 125. Ruston, former president of Keddco, was fired for cause. Keddco alleged that Ruston committed fraud. When Ruston indicated that he would be retaining legal counsel, Keddco advised him that, if he hired a Lawyer, it would counter-claim against him. They warned that the costs of litigation would be extreme to both parties.
Ruston ignored the threat and filed a claim against Keddco. Keddco followed-up on their promise and brought a counterclaim for $1.7 million. The lower court found that the allegations of fraud could not be proven. It was held that Ruston was wrongfully dismissed. He was awarded 19 months termination pay, in addition to $100,000 in punitive damages and $25,000 in moral damages. The costs award was $546,684. The total award, including payment in lieu of notice, was just below $1 million. The Ontario Court of Appeal dismissed the employer's appeal and withheld the lower courts ruling on these matters. Keddco's total losses would have far exceeded $1 million with their legal costs included.
Had Keddco simply terminated the employment without cause and relied on a properly drafted termination provision, Ruston's damages could have topped out at the Employment Standards Act entitlements. Without a contract, common law notice would have been subject to the soft cap of 24 months and early settlement would have been possible. Without the allegation of fraud and the subsequent counterclaim, Keddco's worst-case scenario would have likely been much better than the current end result.
This is an example of why employers are often advised to dismiss without cause, asserting the employer's right to do so and relying on properly drafted contract provisions to navigate the employees' entitlements upon termination.
So what does this mean for employees? Firstly, do not assume that your performance can no longer be factored into an award for termination pay. The employer can always argue "near cause" which has reduced awards in past decisions. Understand, however, that the most prevalent dispute in a without cause dismissal is the employee's entitlement, by contract and by law.
Employees who are terminated without cause, need to acknowledge that the employer has the right to do so. Nonetheless, they must do so while preserving your entitlements. Those entitlements should not be assessed by yourself or your employer. All aspects governing the employment relationship should be forwarded to a competent employment Lawyer. The employment Lawyer will indicate your entitlements and provide an honest opinion on the viability of disputing the package that was offered.
What does this mean for Employees and Employers?
Employees: Once terminated without cause, do not sign a full and final release without having a Lawyer review the employment relationship and confirm your actual entitlements.
Employers: Asserting cause is a risky position to take. Cost-benefit might weigh in favour of dismissing the employee "without cause." The allegation of cause cannot be retracted. Counsel should be sought prior to alleging cause.
Sources:
Ruston v. Keddco MFG. (2011) Ltd., 2019 ONCA 125 (CanLII)
Ruston v. Keddco Mfg. (2011) Ltd., 2018 ONSC 2919 (CanLII)
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I own a small events and promotions business. Every so often I get emails from students asking if they could volunteer to learn about the business. I’ve never hired a student because they’re inexperienced but I’m considering hiring one as an intern this summer. I don’t have the budget for a full time employee but I would be willing to pay them a modest stipend. I’ve heard both paid and unpaid internships are illegal in Ontario. Is this true?
In Ontario, the rules around internships are strict and in recent years some employers have been required to change their internship programs as a result. If someone is receiving on the job training from a business they are considered to be an employee of the business under Ontario law. As an employee they are entitled to a minimum wage under the Employment Standards Act so paying them a stipend that does not meet the minimum wage is against the law.
There are two exceptions to this general rule which recognize the educational value of internships. The first is internship programs approved by a college or university which are permitted.
The second exception is internships that meet criteria set by the Ministry of Labour. These requirements include that the intern is receiving valuable training, is not taking someone else’s job, and has not been promised a job after their training. The most important feature is the educational component: the primary purpose of internships is to teach valuable skills, not to provide cheap labour to businesses.
The safest way to ensure compliance with the law is to have an internship approved as part of a college or university program. Alternatively, you should design the internship ahead of time to focus it around training and skills development.
Last month local newspapers reported the case of a McDonald’s employee in Kanata who was dismissed after receiving poor performance reviews. The employee received more than $100,000.00 in court. Why?
The short answer is that the judge in this case found that although the employee’s performance was not perfect the employer did not have “just cause” to terminate her employment contract. If a business chooses to dismiss an employee the employer has to first decide if they have just cause to end the contract or not. Just cause exists when an employee has committed a serious breach of contract such as theft or continually missing work without reason. If the employer does not have just cause then in most cases they have to provide compensation which can equal up to a month of salary for every year of the employee’s service.
Many employers have staff who they believe are poor performers. Performance reviews are often done to encourage better performance but may also be an attempt to build a case for a just cause dismissal. After several poor performance reviews an employer may choose to dismiss an employee for just cause. However, a decision to terminate an employee for just cause can be challenged in court where employers often find it difficult to prove that the alleged breach of contract was serious enough to warrant a just cause dismissal. Poor performance reviews may show that an employee was less than perfect but this alone is usually not enough to disentitle them to some compensation when they are dismissed. Because compensation is typically based on the number of years the employee has worked, the amount owing to dismissed employee can be significant which is what occurred in the case of the former McDonald’s employee.