As it currently stands, non-unionized construction workers are not entitled to notice of termination, termination pay, or severance pay pursuant to the O.Reg.288/01 of the Employment Standards Act, 2000. A construction employee is defined as follows by the ESA:
“construction employee” means,
(a) an employee employed at the site in any of the activities described in the definition of “construction industry”, or
(b) an employee who is engaged in off-site work, in whole or in part, but is commonly associated in work or collective bargaining with an employee described in clause (a).
Despite this clear language within the legislative exemption, a recent decision of the Divisional Court has decided that a construction employer is required to provide reasonable notice of when the termination clause in the employment contract is unenforceable (Rutledge v. Canaan Construction Inc., 2020 ONSC 4246).
The employee was laid off for “shortage of work/or end of contract or season” by the employer. The employee was not recalled to work and subsequently found alternative employment.
Shortly afterwards, the employee commenced an action in the Small Claims Court seeking damages for wrongful dismissal. Canaan Construction Inc., defended the claim by arguing that the construction employee was not entitled to notice or termination pay pursuant to the ESA, and that their contract confirmed this exemption.
The employee argued that the termination clause was invalid as it contracted out of the ESA minimums. The clause was written as follows:
The Employee may be terminated at any time without cause upon being given the minimum periods of notice as set out in the Employment Standards Act, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation. The Employee acknowledges that pursuant to the Employment Standards Act they are not entitled to any notice or time in lieu thereof due to the nature of their job and as such they are entitled to absolutely no notice or pay and benefits in lieu thereof upon termination.
The termination provisions set force above, represent all severance pay entitlement, notice of termination or termination in lieu thereof, salary, bonuses, vacation pay and other remuneration and benefits payable or otherwise provided to the Employee in relation to the termination of the Employee regardless of cause or circumstances.
Despite acknowledging that construction employees are not entitled to notice or termination pay under the ESA, the Divisional Court determined that the termination clause was invalid as it could disentitle the employee:
- should the employee move to a non-exempted position in the future, or
- if the employer’s business grew to the point where it met the 2.5 million payroll or 50 or more employees severance pay threshold.
As a result, the Divisional Court upheld the Small Claim Court decision to award reasonable notice of termination to the construction employee.
This decision is problematic for two reasons:
- the Divisional Court’s assumption that the employee may eventually move to a non-construction position is akin to predicting the future. While the Covenoho v. Pendylum Ltd. 2017 ONCA 284 decision referred to in this case concludes that a termination clause must be valid throughout the employment of the employee, it does not stand to reason that an employer should be omniscient and take into account a future promotion which may never even be contemplated; and
- the Divisional Court’s finding that the employee could eventually be entitled to severance pay is inconsistent with O.Reg. 288/01 9(1) of the ESA which specifically excludes construction employees from the entitlement to severance pay.
There may have been an additional argument available to this employer based on the Ontario Court of Appeal decision Scapillati v. Potvin Construction  O.J. No. 2187. The Court of Appeal determined that construction employees are not entitled to reasonable notice in the circumstance where there is a custom or practice of the trade to not provide reasonable notice. It is unfortunate that the case was not considered by the judge or argued by the parties.
While arguably there is no entitlement to notice, termination pay or severance pay pursuant to the ESA, or to reasonable notice at common law for terminated construction employees as defined by the ESA, employers can attempt to limit the risk outlined in this case with a properly drafted termination clause in an employment contract. If you have questions regarding this case and how it may impact on your operations, please contact me.
The material presented in this blog is to present general information on the subject matter and should not be regarded or relied upon as legal advice or opinion.