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Can a Hypothetical Breach of an Employment Agreement Effect the Agreement’s Enforceability?

The Superior Court of Justice Divisional Court’s Decision in Garreton v. Complete Innovations Inc., 2016 ONSC 1178

Background

Complete Innovations Inc. (“CI”) brought an appeal of the judgement that the plaintiff, Marcela Garreton (“Garreton”) was dismissed from her employment with CI without cause and awarding Garreton damages of $25, 000, representing five (5) months’ notice. Garreton had been working with CI for just over two (2) years at the time of her termination.
 
The relationship between CI and Garreton was dictated by a written employment contract (the “Contract”) which included a termination clause with a prescribed notice period in the event Garreton was terminated without cause. This provision stated:
 
  • Otherwise Complete Innovations Inc. may at any time terminate this agreement by providing the Employee with (1) one week notice if their duration of continuous employment with the Company is more than 3 months but less than 1 year. (2) weeks prior written notice of intention to terminate if the Employee duration of continuous employment with the Company is more than 1 year but less than (3) years. If the duration of continuous employment with the Company is more than 3 years each additional year will entitle the Employee to (1) one additional week of notice to a maximum of 8 weeks.
The Contract did not, however, provide for any severance in addition to the prescribed notice period described above. As such, it failed to comply with the minimum standards prescribed by the Employment Standards Act (the “Act”). However, because CI did not rely on the Contract to terminate Garreton, the trial judge declined to determine whether the termination provision of the Contract was enforceable.

Issues

CI brought its appeal on the following issues:
  1. the trial judge erred in concluding that CI did not rely on the employment agreement between the parties’ termination;
  2. the trial judge erred in failing to determine whether the termination provision was void and unenforceable; and
  3. the trial judge erred in determining that CI did not have just cause to terminate Garreton.

Superior Court of Justice Divisional Court’s Decision

First, the Divisional Court (the “Court”) held that the trial judge erred in failing to consider whether the Contract was enforceable.  As such, the Court considered whether the Contract was enforceable, meaning Garreton’s notice would be limited to the two (2) weeks prescribed. In this consideration, the Court asked if “the termination clause is therefore void and unenforceable for a CI employee of more than 5 years, is it so for Garreton who was an employee of less than 3 years?" (para 23). The Court stated that “the employment contract must be considered at the time it is executed. If the termination provision is not onside with notice provisions and severance provisions (if applicable) of the Act at the outset, then it is void and unenforceable. Potential violation in the future is sufficient.” (para 27). Meaning, the Court held that the Contract’s termination provision was invalid.
 
Finally, the Court determined that despite the trial judge’s error in law, the trial judge did not err in finding that Garreton’s termination was not for just case. As such, the Court upheld the $25,000 original award, representing five (5) month’s notice.

Our Thoughts

The implication of this decision is that a termination provision may be invalid because of a potential future violation of the Act.  As such, it may be advisable for employers to consider the stronger chance of nullification of a termination provision of a contract, even if the breach of the Act is a hypothetical one. Once again this decision appears to be in line with the Court’s trend to extend greater protections to employees as compared to employers.
 
The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.