As many of our readers are aware, since the decision in Waksdale v. Swegon North America, where the Ontario Court of Appeal determined that because a just cause termination provision provided a lower threshold than the Ontario Employment Standards Act, 2000, that the entire termination clauses were void including without cause provisions, employers have been scrambling to amend employment contracts.
Thankfully, in the recent decision of Rahman v. Cannon Design Architecture Inc., 2021 ONSC 5961, the Court determined whether the following termination clause was valid. The contract confirmed that upon termination without cause, the employee would receive not less than:
“advance notice and/or applicable payments, benefits continuation, and severance pay if applicable, equivalent to the minimum applicable entitlements contained within the Ontario Employment Standards Act, 2000, as amended, or any applicable successor legislation” and
“for greater certainty, Cannon Design’s maximum liability to you for common law notice, termination pay, benefits continuation, severance pay, or payment in lieu of notice shall be limited to the greater of the notice required in your Officer’s Agreement or the minimum amounts specified in the ESA.”
The employee sought legal advice, and was specifically given advice on the termination clause. The counter proposal made by the employee and her lawyer was that notice of one month per year of service should be provided in exchange for a full release in the event of a termination by the company.
The employer created an enhanced benefit and provided for two months’ notice in the event of termination within the first five years, conditional on receipt of a release. The Court determined that these represented a material improvement in excess of the ESA.
The employee, relying on the Court of Appeal decision in Swegon, argued that the termination provisions of her employment agreement were void because the just cause provision violated the minimum standards set out in the Ontario Employment Standards Act, 2000. The clause provided that “CannonDesign maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal.” At first glance, the clause is the same that led the Court in Swegon to set aside the entire contract because it failed to provide for the higher standard of “willful misconduct, disobedience or willful neglect of duty” as required by the ESA.
The Court disagreed with the employee that the strict construction approach taken by the Court of Appeal in Swegon had to be taken in every case. The Court distinguished Swegon, indicating that in this case:
- The termination provisions were freely negotiated with independent legal advice between reasonably sophisticated parties without any marked disparity in bargaining power;
- The negotiations resulted in material improvements for the benefit of the prospective employee in excess of ESA minimums; and
- The offer letter contains an explicit “for greater certainty clause” recognizing that the employer’s maximum liability for common law notice was limited to the greater of notice required in the agreement and the minimum amounts specified in the
The Court correctly points out that if employers are uncertain as to the application or enforceability of freely negotiated agreements, employers will forego any severance benefits beyond the ESA minimums for fear that any attempt to provide something greater at the time of termination will be found invalid resulting in common law liability. Despite the apparent logic of this decision and enforceability of the termination without cause provision, the reasoning here is difficult to reconcile with the Court of Appeal decision in Swegon. We will keep you notified if there is a decision from the Court of Appeal on this case. If you have any questions about the decision, or whether your termination clauses are currently valid, please contact us.