Labour & Employment Law Blog

Termination Clause Not Enforceable When With Cause Portion Violates Ontario’s Employment Standards Act

The case of Tan v. Stostac Inc., 2023 ONSC 2121 was a wrongful dismissal matter that was determined via a summary trial. The plaintiff worked for the defendant as a depot manager. This was a managerial position where he supervised a small number of staff onsite at the defendant’s depot. He was terminated after working for the defendant for 5 years at the beginning of the COVID-19 pandemic. The plaintiff’s salary was approximately $67,000 and he was enrolled in the defendant’s company benefit program. He was also provided with a yearly bonus.

The defendant had given the plaintiff notice of termination on May 28, 2020, informing the plaintiff that his employment would cease the following day. The defendant’s position was that the plaintiff’s termination was due to the bad economic conditions caused by the COVID-19 pandemic. The plaintiff was unable to find a job even though he had applied to more than 80 comparable positions.

The plaintiff had argued that the termination clause in the plaintiff’s employment agreement was unenforceable and that he should be entitled to common law notice. The plaintiff had signed an employment agreement that included a term with respect to benefits upon termination of employment that stated that the employment relationship can be terminated at any time by the employer for “any just cause” recognized by law.

The court agreed with the plaintiff and held that the employment agreement was not enforceable by the defendant. The court first set out that at common law an employee terminated without cause is entitled to reasonable notice. Employers and employees may contract out of the entitlement to common law notice but not in a way that is inconsistent with the employee’s statutory rights. However, at the case at hand, the employer’s termination clause provided that the plaintiff can be terminated without notice or pay for “any just cause.” This is not consistent with Ontario’s Employment Standards Act, 2000, which provides that termination without notice or pay is only allowed when an employee is guilty of “willful misconduct, disobedience or willful neglectful duty that is not trivial and has not been condoned by the employer.” The standard set out in Ontario’s Employment Standards Act, 2000, is narrower than what is identified as just cause in the common law.

The court then set out that the final sentence of the termination clause which cites Ontario’s Employment Standards Act, 2000, was not enough to set aside the defendant’s earlier assertions that the defendant had a right to terminate without notice for “any just cause.” The court went to cite Ontario’s court of appeal decision of Waksdale v. Swegon North America Inc. 2020 ONCA 391. In Waksdale, Ontario’s court of appeal held that if a with cause portion of a termination clause violates Ontario’s Employment Standards Act, 2000, then it will render the entire termination clause void and unenforceable. As such, the plaintiff was entitled to reasonable notice at common law.

Our Thoughts

We again get to see the Ontario’s court of appeal decision of Waksdale in action in this case. It is the law in Ontario that an error in the termination provision or part of the termination provision of an employment agreement will cause the entirety of the agreement to be unenforceable even though the illegal provision is not an issue or if there is a saving clause. The termination clause as a whole must not violate Ontario’s Employment Standards Act. Our firm successfully argued this proposition in the decision of Tarras v. The Municipal Infrastructure Group Ltd., 2022 ONSC 4522.

This also means that navigating the termination of an employee is more complicated than meets the eye and employers should consider their options carefully when doing so. Employers should seek the advice of an employment lawyer prior to hiring an employee in order to make sure that their termination clause in their employment agreement is enforceable. Employers should also seek out the advice of an employment lawyer prior to terminating an employee to ensure that the employee’s dismissal is carried out in a way that would reduce the employer’s potential liability under the common law.

The above article is for general information purposes only, does not constitute legal advice or create a solicitor-client relationship. Because each case is unique and factually driven, 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. We represent clients in the Greater Toronto Area including Toronto, North York, Markham, Vaughan, Thornhill, Newmarket, Aurora, Brampton, Mississauga, Barrie, Ajax, Whitby, Pickering and Oshawa.