Ontario: Without-Cause Termination Provision Upheld

By David J. Master and Monty Verlint November 14, 2019
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​A Canadian employee's attempt to invalidate an employment contract failed, even though one provision in the contract, the just-cause termination provision, was invalid. The Ontario Superior Court of Justice (ONSC) relied on and upheld the portion of the employment contract that provided short notice and relatively low pay, the without-cause termination provision, because the employee was fired without cause.

When just cause for dismissal exists at common law, which is a high standard, an employer can terminate the employment relationship without providing common-law notice or pay in lieu of notice. However, depending on the nature of the employee misconduct, the dismissed employee may still be entitled to statutory termination payments under the Employment Standards Act, 2000 (ESA). This is because the threshold of misconduct required to justify denial of the statutory termination payments, commonly known as "willful misconduct," is higher than the common-law standard. For example, poor performance or an error in judgment, although they could amount to just cause for dismissal at common law, are unlikely to amount to willful misconduct. Because of the high standard at common law, and even higher standard under the ESA, most firings are instead without cause, which requires the employer to provide notice, pay in lieu of notice, or a combination of notice and pay.

The plaintiff worked as director of sales for a company that produces and distributes energy-efficient ventilation and indoor climate systems. The parties entered into an employment agreement, which set out the terms and conditions of the employment relationship.

The plaintiff was fired without cause after just eight months. The employer gave the fired director pay in lieu of notice, as specified in the employment agreement, which slightly exceeded the minimum standards of the ESA.

Under the ESA, the notice time frame is shorter and the pay is lower than under common law.

The employee sued, seeking damages of six months' pay in lieu of notice, contending that he was entitled to common-law reasonable notice or pay because the termination clause violated the ESA.

Specifically, the plaintiff sought to invalidate the without-cause termination provision by arguing that the for-cause termination provision violated the ESA. The employer conceded that the for-cause termination provision violated the ESA but said it was irrelevant because the plaintiff was not fired for cause.

The ONSC ruled in favor of the employer because it found that the without-cause and for-cause termination provisions were two distinct clauses. It also concluded that the without-cause provision was unambiguous and enforceable. Therefore, the employer acted within its right under the employment agreement.

[SHRM members-only toolkit: Introduction to the Global Human Resources Discipline]

Waksdale v. Swegon North America Inc., 2019 ONSC 5705.

Professional Pointer: Termination clauses are among the most highly litigated areas in Canadian employment law. The court's message in this case is that if an employee is fired without cause and the without-cause termination provision is a clear, separate and stand-alone clause that does not violate the ESA, it will likely be enforced. Nonetheless, if an unenforceable just-cause termination provision and otherwise enforceable without-cause termination provision are within a single clause, the whole clause may be unenforceable.

David J. Master and Monty Verlint are attorneys at Littler LLP in Toronto.

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