Oct 1, 2020

Ontario Court Ruling: Termination Clause Invalidated for Violating the Employment Standards Act (ESA)

Sewell v. Provincial Fruit Co. Limited, 2020 ONSC 4406 (CanLII)

If a termination clause attempts to contract out of an employee’s minimum entitlements under the law, the clause will be invalid, and the employee will be entitled to the greater amount of common law notice.

The Ontario Superior Court, in the case of Sewell v. Provincial Fruit Co. Limited, 2020 ONSC 440, found a termination clause to be invalid because it was in violation of the Employment Standards Act (“ESA”), applying the reasoning of the Ontario Court of Appeal in the 2020 decision Waksdale v. Swegon North America Inc.

The Plaintiff began his employment with Provincial Fruit Co. (the “Defendant”) on October 9, 2019 in a senior sales role. After only 6 months of employment, the Plaintiff was terminated without cause on April 17, 2019, and was provided with 2 weeks’ salary and benefits as per the contract and in line with the requirements of the ESA.

The issue to be decided in this case was whether the termination clause was enforceable.

The Termination Clause

The Plaintiff signed an employment contract which stated the following:

b) Termination by the Company for Just Cause

The Company is entitled to terminate your employment at any time and without any notice or any further compensation for just cause and the Company will not have any further obligations to you whether at contract, under statute, at common law or otherwise.

c) Termination by the Company without Just Cause

(A) The Company will be entitled to terminate your employment at any time without just cause by providing you with the following:

(ii) a payment, or at the Company’s sole option, notice or combination of notice and pay in lieu of such notice representing termination pay and, if applicable, severance pay, as may be required under the Employment Standards Act, 2000, as amended from time to time (the “Separation Period”);

It is agreed that upon compliance with the above provisions, the Company will be release from any and all obligations to you, whether statutory, under contract, at common law or otherwise.

“Power Differential”

Justice Mandhane begins her analysis of the termination clause by accepting the Plaintiff’s argument that he signed the contract with the expectation that the Defendant would adhere to the appropriate employment standards legislation. She finds that it was reasonable for the Plaintiff to sign the contract without poring over its termination provisions or obtaining independent legal advice. This was reasonable because of the “power differential between the parties and the good faith basis upon which they had established their relationship” (para 9).

Violation of the Employment Standards Act

The Court follows recent Ontario Court of Appeal decisions of Waksdale, Wood, and Rossman, in using its discretion to protect employees by examining the employment contract as a whole to determine if it meets minimum employment standards. The Court finds that the employment contract at issue is unenforceable for the two reasons:

1) Combines Notice Pay and Severance Pay Entitlements

The first offending part of the provision is the following:

The Company will be entitled to terminate your employment at any time without just cause by providing you with… a payment, or at the Company’s sole option, notice or a combination of notice and pay in lieu of such notice, representing termination pay and, if applicable, severance pay.

According to the Court, this violates the ESA as it allows for the combination of severance and notice pay, when the legislation requires payment of both severance notice.

2) Must Provide Notice Unless There is “Wilful Misconduct”

The Ontario Superior Court of Justice applied the Ontario Court of Appeal’s reasoning from Waksdale in finding that the termination for cause provision contravened the Employment Standards Act by not providing notice if there is merely “cause”, rather than the legislated requirement of “wilful misconduct” in order to disentitle an employee from notice pay. As asserted in Waksdale, even if the offending provision is not at issue in the present case, the contract must be read as a whole and the entire contract is void.

Therefore, the Court held that the termination provision was invalid, and the Plaintiff was entitled to 4 months of common law notice.

Significance of Sewell

This decision reinforces the precedent introduced by Waksdale for invalidating termination for cause provisions based on the exclusion of a “wilful misconduct” stipulation. Further, it echoes Waksdale by asserting that termination provisions should not be analyzed independently but together, and the illegality of one voids the other, even if the unenforceable clause is not at issue on the facts of the case.

This creates a powerful authority that will likely invalidate many termination provisions in the future, entitling employees to increased levels of notice. This judicial trend will create significant change for employers and employees across Ontario.

NOTE: The above post is general information about this specific case. If you have specific questions about your employment situation, you can contact Monkhouse Law for a free phone consultation.