Court of Appeal Strikes Down Termination Provision

Another One Bites the Dust...Court of Appeal Strikes Down Termination Provision

At this point, most employers know that termination provisions must be carefully drafted to ensure that they provide the minimum notice requirements for termination as set out in the Employment Standards Act, 2000 (the “ESA”). This applies to termination “without cause” provisions, as well as termination “for cause” provisions.

Under the ESA, the standard for terminating an employee for cause is “willful misconduct.” Conduct which permits the employer to terminate an employee “for cause” under the common law may not meet the statutory standard of willful misconduct. In such a case, the employer is required to pay the employee their minimum ESA entitlements. A termination provision which does not address this issue will be unenforceable.

In a recent decision, the Ontario Court of Appeal has found that where an employment agreement has a “for cause” termination provision which violates the ESA and a “without cause provision” which complies with the ESA, both provisions will be struck down as unenforceable. This is the case even if the employee is being terminated “without cause” and even in the face of a severability clause.

In Waksdale v. Swegon North America, the court examined an employment contract which had a termination “for cause” provision and a termination “without cause” provision in two separate paragraphs. The termination “without cause” provision complied with the ESA and was agreed to be enforceable. It was conceded that the termination “for cause” provision violated the ESA and was unenforceable Mr. Waksdale was terminated without cause but argued that because the “for cause” provision breached the terms of the ESA, this rendered both termination provisions unenforceable. The Court of Appeal agreed. The court found that the provisions must be read as a whole and that it is “irrelevant whether the termination provisions are found one place in the agreement or separated, or whether the provisions are by their terms otherwise linked.”

‍What does this mean for employers? Now is the time to review and update your employment agreements. Even if your termination provisions were drafted by an experienced lawyer, the wording used may be unenforceable. Many employment agreements currently in use have a “for cause” termination provision which does not comply with the ESA. This may now result in the termination “without cause” provision also being unenforceable.

‍What does it mean for employees? An employment agreement must be interpreted as a whole and not on a piecemeal basis. If you are terminated and are subject to the terms of an employment agreement, we strongly recommend that you have the entire agreement reviewed by legal counsel to confirm whether it complies with the ESA.

Frequently Asked Questions

Duty to Accommodate – Where do employers draw the line?

Duty to accommodate – Where do employers draw the line?

‍Employers should do what they can to accommodate their employee’s disability, but there’s a line to be drawn between accommodation and frustration of the employment contract. If the contract is in fact “frustrated”, the employer can end the employment relationship without violating the Human Rights Code (Code). The question is whether the employer suffers undue hardship.

Section 11 of the Code allows the employer to show that a requirement, qualification or factor that results in discrimination is nevertheless reasonable and bona fide (legitimate). However, to do this, the employer must show that the needs of the person cannot be accommodated without undue hardship.

The duty to accommodate has both procedural and substantive obligations. The procedural component requires that the employer take steps to understand the employee’s disability-related needs and undertake an individualized investigation of potential accommodation measures to address those needs. The employer bears the onus of demonstrating what considerations, assessments and steps were undertaken to accommodate the employee to the point of undue hardship. The purpose of the duty to accommodate in an employment context is to ensure that an employee with a disability could continue to perform the essential duties of his or her employment if his or her needs can be accommodated without causing undue hardship to the employer.

The test for undue hardship is not total unfitness for work in the foreseeable future. If the characteristics of a disability are such that the proper operation of the business is hampered excessively or if an employee with such a disability remains unable to work for the reasonably foreseeable future even though the employer has tried to accommodate him or her, the employer will have satisfied the test. The duty to accommodate is compatible with general labour law rules, including both the rule that employers must respect employees' fundamental rights and the rule that employees must do their work. The employer's duty to accommodate ends where the employee is no longer able to fulfill the basic obligations associated with the employment relationship for the foreseeable future.

In Nason v. Thunder Bay Orthopaedic Inc. the employee was terminated while on unpaid medical leave. The trial judge awarded damages for wrongful dismissal. The Court of Appeal ruled that the employer’s decision to put the employee on an unpaid leave of absence was not an infringement of his rights, at that time, since the employer had already attempted to accommodate the employee. The employee could not fulfill the basic obligations of his position, despite the accommodations he received. However, the Court rejected the employer’s argument that the employment contract had been frustrated.

The onus to prove that the contract was frustrated was on the employer. The employer believed that the employee’s limitations were permanent. However, the employer did not seek medical information to sufficiently explore and conclude whether there was no reasonable likelihood that the employee could be returned to work with accommodations in the future.

The employer must assure that the tasks required of the employee are actually necessary to meet the employer’s goals. If the employee could continue his/her employment while avoiding such tasks and while still achieving the employer’s requested goal, there is no undue hardship. The test was set out by the Supreme Court of Canada. To establish a bona fide occupational requirement, the employer must prove that the requirement:

was adopted for a purpose or goal that is rationally connected to the function being performed (such as a job, being a tenant, or participating in the service);
was adopted in good faith, in the belief that it is necessary for the fulfilment of the purpose or goal; and
is reasonably necessary to accomplish its purpose or goal, in the sense that it is impossible to accommodate the claimant without undue hardship.

What does this mean for Employers?

Employers should err on the side of caution and seek counsel prior to claiming frustration of the employment agreement. If it’s done prematurely, the employer could be subject to a wrongful termination claim, giving rise to common law reasonable notice or a claim for discrimination pursuant to the Code. Employers should also run an individual investigation into the employee’s limitations. It’s one thing to say that the employee cannot meet the demands of the job regardless of available accommodations. The employer must prove it by way of a proper and full investigation into the employee’s limitations. Prior to claiming frustration of the contract, the employer should consider the following:

whether it investigated alternative approaches that do not have a discriminatory effect;
reasons why viable alternatives, if any, can’t be put in place;
whether it can meet the legitimate objectives in a less discriminatory way;
whether the job requirement is properly designed to make sure the desired qualification is met without placing an undue burden on the people it applies to; and
whether other parties who are obliged to assist in the search for accommodation have fulfilled their roles.

British Columbia (Public Service Employee Relations Commission) v. BCGSEU, [1999] 3 S.C.R. 3.

Ellis v. General Motors of Canada Ltd., 2011 HRTO 1453.

Nason v Thunder Bay Orthopaedic Inc, 2015 ONSC 8097, [2015] OJ No 6892.

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Are temporary layoffs permitted?

Work at my business has slowed down quite a bit this year. I currently have 11 employees but there is not enough work to go around. I should be getting a set of new contracts that will keep everyone busy this spring, but I’d like to make some temporary layoffs in the meantime to avoid having to let anyone go for good. I’ve discussed this with business colleagues who told me that temporary layoffs are not permitted for non-unionized employees. What are my options?‍

The law applicable to temporary layoffs in Ontario can be confusing. The Employment Standards Act does allow temporary layoffs of up to 13 weeks in a 20 week period. In certain seasonal industries, such as construction, temporary layoffs over the winter months are fairly common. However, in other workplaces courts in Ontario have treated temporary layoffs as constructive dismissals and have ordered employers to provide termination and severance pay.

In recent years, some Ontario court decisions have allowed temporary layoffs provided employers comply with both the Employment Standards Act and the terms of the employee’s contract. Depending on the nature of the work, such layoffs may even be permitted when an employee is working with an unwritten contract. A temporary layoff is also more likely to be permitted if an employee remains entitled to benefits and can access Employment Insurance during their time off. During any such layoff it is important to inform the employee that the layoff is temporary and to provide them with a return to work date. Finally, a temporary layoff should not be used as a form of discipline to punish an employee for misconduct – that will most certainly result in a claim for constructive dismissal.

What is "just cause" in employment law?

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.