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Employment - ESA - Where Terms Void. Dufault v. Ignace (Township)
In Dufault v. Ignace (Township) (Ont CA, 2024) the Ontario Court of Appeal dismissed a municipality's wrongful dismissal appeal, here where the action was heard by summary judgment and grounded without cause. The central issue was the extent of the employment contract-voiding effect of it's ESA-breaching provisions (Waksdale):[2] The parties agreed that the case was appropriate for summary judgment. The primary issue on the summary judgment motion was whether the termination clauses in the employment contract complied with minimum standards provided for in the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”).
[3] The respondent argued before the motion judge that both the “for cause” and “without cause” termination clauses in the employment contract were illegal and unenforceable, as they purported to contract out of the minimum standards set by the ESA.
[7] The appellant also argues that in the event this court concludes that the “for cause” termination clause is void for non-compliance with the ESA minimum standards, but the “without cause” clause does not contravene the ESA minimum standards, the “for cause” clause should be severed and the “without cause” clause preserved. There is no dispute that the respondent’s termination was on a “without cause” basis. In making the argument that the “for cause” termination clause can be severed, the appellant submits that we should reconsider and decline to follow our court’s prior decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, 446 D.L.R. (4th) 725. As is discussed below, in Waksdale, this court held that the termination provisions in an employment contract must be read as a whole, with the result that illegality in one termination provision for failing to meet ESA minimum standards invalidates all of the termination provisions: at paras. 9-14.
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Analysis
[9] The motion judge found that several aspects of both the “for cause” and “without cause” termination clauses failed to comply with the minimum standards in the ESA. As a result, the clauses were unenforceable.
[10] We decide the appeal solely on the basis of one aspect of the “for cause” termination clause. We agree with the motion judge’s finding that the clause purports to allow the appellant to terminate the respondent for “cause”, without notice or pay instead of notice, and defines “cause” more broadly than the narrow exception in the ESA which allows for termination without notice or pay instead of notice for “wilful misconduct”. As such, it fails to comply with the minimum standards set by the ESA.
[11] The parties agree that because the motion judge’s decision about the validity of the “for cause” termination clause involves the interpretation of the employment contract, the standard of review is palpable and overriding error: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 481, at para. 43. The appellant does not argue that there is an extricable error of law in the motion judge’s interpretation of the “for cause” termination clause.
[12] Laskin J.A. summarized the law regarding the interpretation of employment contracts in Woods, at paras. 28, 44-51. Three points are of particular importance for this appeal. First, the ESA is remedial legislation, intended to protect the interests of employees. As a result, courts should favour an interpretation of the ESA that encourages employers to comply with its minimum standards over an interpretation that does not do so.
[13] Second, termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence for an employer of drafting a termination clause that does not comply with ESA minimum standards is an order that they comply, employers will have little incentive to draft a lawful termination clause at the start of the employment relationship.
[14] Third, the interpretation of a termination clause and whether it meets the minimum standards set out in the ESA is based on the wording of the clause. Thus, even if the employer complies with the ESA minimum standards at the time of termination, that compliance does not have the effect of remedying a termination provision that does not comply with the ESA minimum standards in a contract entered into at the beginning of the employment.
[15] The “for cause” termination clause in this case provides as follows:4.01 The Township may terminate this Agreement and terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee’s employment is terminated with cause, no further payments of any nature, including but not limited to, damages are payable to the Employee, except as otherwise specifically provided for herein and the Township’s obligations under this agreement shall cease at that time. For the purposes of this agreement, “cause” shall include but is not limited to the following:
(i) upon the failure of the Employee to perform the services as hereinbefore specified without written approval of Municipal Council and such failure shall be considered cause and this Agreement and the Employee’s employment terminates immediately;
(ii) in the event of acts of wilful negligence or disobedience by the Employee not condoned by the Township or resulting in injury or damages to the Township, such acts shall be considered cause and this Agreement and the Employee’s employment terminates immediately without further notice. [Emphasis added.] [16] Section 55 of the ESA and s. 2(1)3 of the regulation on Termination and Severance of Employment, O. Reg. 288/01 (the “Regulation”), create an exception to the requirement under the ESA that an employer must provide notice prior to the termination of an employee or pay instead of notice: Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310, at paras. 72-74, 78; Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451, at para. 27. The exception allows for termination without notice or pay instead of notice in circumstances of employee misconduct, defined as follows: “Any employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that it not trivial and has not been condoned by the employer.”
[17] This court has held that a high level of employee misconduct is required to fall within the exception in s. 2(1)(3) of the Regulation – more than is required for just cause dismissal at common law. The level of misconduct required to come within the wilful misconduct exception in the Regulation has been characterized by this court as conduct that is done by the employee “deliberately, knowing they are doing something wrong” and as “being bad on purpose”: Render, at paras. 79-80; Rahman, at para. 28.
[18] The impact of the notice and termination pay provisions of the ESA and the limited exception in s. 2(1)3 of the Regulation is that where some form of common law or contractually defined cause for termination exists, but which falls short of the high level of misconduct required to come within the scope of s. 2(1)3 of the Regulation, a terminated employee is entitled either to notice or pay instead of notice as required by the ESA: Rahman, at para. 29.
[19] In this case, the “for cause” termination clause purports to allow the appellant to terminate the respondent’s employment without notice or pay in lieu of notice in circumstances that are broader than the exception in s. 2(1)3 of the Regulation. Two aspects of the clause make this clear.
[20] First, the language in the partial definition of “cause” in clause 4.01(i) – “the failure of the Employee to perform the services as hereinbefore specified” – is a lower standard of misconduct than that set out in s. 2(1)3 of the Regulation. A “failure to perform services” does not require the level of wilful misconduct prescribed s. 2(1)3 of the Regulation as interpreted in Rahman and Render. We reject the appellant’s argument that the language of “failure of the Employee to perform services” is narrower than the wilful misconduct standard in the Regulation.
[21] Second, the clause provides an inclusive definition of “cause” (“shall include but is not limited to the following”). Thus, not only does the partial definition in clause 4.01(i) encompass conduct broader than the wilful misconduct standard in s. 2(1)3 of the Regulation, the fact that the definition is not “limited” to the list of examples below purports to permit the employer to deem other conduct as “cause” allowing for termination without even ESA notice or pay instead of notice. We reject the appellant’s submission that the “shall include but is not limited to” language restricts the definition of “cause” in the contract.
[22] Thus, we see no error in the motion judge’s finding that the “for cause” termination clause provides for a lower standard of employee misconduct than that set out in s. 2(1)3 of the Regulation. The “for cause” termination clause purports to deny notice or pay instead of notice where the grounds for termination do not meet the high standard of wilful misconduct required under s. 2(1)3 of the Regulation. As such, the “for cause” termination clause in the employment contract fails to meet the minimum standard provided for in the ESA: Rahman, at para. 29.
[23] In Waksdale, this court held that the termination provisions in an employment contract must be read as a whole. If one termination provision in an employment contract violates the ESA minimum standards, all termination provisions in the contract are invalid: at paras. 9-14. This holding in Waksdale was followed in Rahman, at para. 30.
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[25] Given our conclusion that the “for cause” termination clause of the employment contract is unenforceable as contrary to the ESA and that, pursuant to Waksdale, this renders all of the termination provisions unenforceable, it is not necessary to consider the appellant’s arguments that the motion judge erred in finding the “without cause” termination clause also unenforceable as contrary to the ESA, and we expressly do not rule on that submission. The appellant argued that the motion judge’s findings in relation to the “without cause” termination clause may affect other employment contracts. In our view, resolution of the issues the appellant raises regarding the “without cause” termination clause should be left to an appeal where it would directly affect the outcome.
[26] As the termination clauses are unenforceable, the motion judge was correct in finding that the respondent was entitled to damages based on the end date of the fixed-term employment contract. . Kopyl v. Losani Homes (1998) Ltd.
In Kopyl v. Losani Homes (1998) Ltd. (Ont CA, 2024) the Court of Appeal considered the early termination of a fixed-term employment contract, and the voiding effect of ESA breach:[1] The appellant hired the respondent on a one-year fixed term contract from July 6, 2022, to July 6, 2023, (the “Term”) at an annual salary of $150,000. The employment agreement included both for-cause and without-cause termination clauses (collectively, the “Termination Clauses”).
[2] On January 9, 2023, the appellant purported to terminate the respondent’s employment on a without-cause basis and paid her four weeks salary, equal to $11,538.46.
[3] The respondent argued that the Termination Clauses in the contract were void on the basis that they contravened requirements set out in the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”). Therefore, the respondent claimed that the appellant did not have the right to terminate her employment prior to the expiry of the Term and that she was entitled to be paid her salary for the Term’s unexpired portion, without a duty to mitigate her damages.[1]
[4] The appellant did not dispute the fact that the Termination Clauses contravened the ESA and were therefore void. However, relying upon this court’s decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, 446 D.L.R. (4th) 725, the appellant argued that, where one termination clause in an employment contract contravenes the ESA, all the termination clauses in the contract are automatically voided. The appellant further argued that the clause establishing a one-year limit to the respondent’s employment (the “Fixed Term Clause”) was in effect a termination clause. Thus, because the Termination Clauses in the contract were void, so too was the Fixed Term Clause. The legal consequence was that the respondent’s employment was not subject to a fixed term but, rather, was terminable upon the provision of “reasonable notice” at common law, subject to a duty on the respondent to mitigate her damages. The appellant maintained that the four-week salary that had been paid to the respondent more than satisfied its obligations upon termination.
[5] The application judge rejected the appellant’s position and found that the invalidity of the Termination Clauses did not affect the validity of the Fixed Term Clause. Relying on this court’s decision in Howard v. Benson Group Inc., 2016 ONCA 256, 129 O.R. (3d) 677, at para. 21, the application judge found that a contractual provision providing for a fixed term of employment was not a termination clause since, upon the expiry of said fixed term, the employment relationship automatically terminates without any obligation on the employer to provide notice or payment in lieu of notice. Therefore, despite the invalidity of the Termination Clauses, the Fixed Term Clause remained in effect. The legal consequence was that the respondent’s employment had been wrongfully terminated and she was entitled to receive payment equal to her salary and benefits for the unexpired portion of the Term, less any amounts paid by the appellant, without any duty to mitigate.
[6] On appeal, the appellant argues that the application judge failed to properly apply Waksdale, that the invalidity of the Termination Clauses should have voided the Fixed Term Clause, and that the respondent was entitled only to the provision of reasonable notice, rather than compensation for the unexpired portion of the Term.
[7] We do not agree. Although the application judge’s decision is reviewable on a correctness standard,[2] the application judge made no error in finding this court’s decision in Benson Group Inc. to be dispositive of the application.
[8] In Benson Group Inc., the invalidity of a clause providing for early termination of the employment agreement on a without cause basis did not alter the legal effect of the provision fixing the term of the contract. Because there was no enforceable provision providing for early termination without cause, the employee was entitled to receive the compensation they would have earned to the end of the term, without any duty to mitigate.
[9] Waksdale, which did not involve a fixed-term employment agreement, involved entirely different circumstances and has no application to this case. Waksdale merely held that the invalidity of a particular termination clause in an employment contract voided other termination provisions in the agreement, with the result that the employee was entitled to reasonable notice upon termination of their employment. Waksdale made no reference to Benson Group Inc., nor did it suggest that the invalidity of the termination clause in an employment contract had the effect of converting a fixed term contract into one terminable on reasonable notice.
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