In a recent case, the Ontario Court of Appeal found that the fact that one part of a termination provision violated employment standards legislation meant that all parts of the termination provision were unenforceable.
The employee began working for the employer on January 8, 2018 as its director of sales. His base salary was $135,000 per year plus expenses and the possibility of an annual bonus, which brought his overall annual salary close to $200,000.
The employee was terminated without cause on October 18, 2018 and the employer paid the employee two weeks’ pay in lieu of notice.
The employee sued the employer for damages for wrongful dismissal, claiming six months’ pay in lieu of notice for his eight months of employment with the employer.
The Employment Agreement
The employment agreement between the parties contained a termination without cause clause, which entitled the employee to one week notice or pay in lieu of such notice in addition to the minimum notice or pay in lieu of such notice and statutory severance pay as may be required under the Employment Standards Act, 2000 (the “ESA”).
The employment agreement also contained a termination for cause provision.
The employee submitted that the termination for cause provision breached the terms of the ESA and was therefore void and unenforceable.
The employer conceded that the termination for cause provision violated the ESA and was unenforceable, but argued that it was irrelevant because the employee was not terminated for cause.
Finally, the agreement contained a severability clause, which stated that if any provision was found to be invalid or illegal, all remaining terms in the agreement would remain in full force and effect.
The employee argued that the unenforceability of the termination for cause provision impacted the agreement beyond that one clause. The employee submitted that the defective clause rendered the entire agreement – or, at the very least, both termination provisions in the agreement – void and unenforceable.
The employer submitted that where there were two discrete termination provisions that applied to different situations, the court must consider whether one provision impacted upon the other and whether the provisions were “entangled” in any way. If they were not, then there was no reason why the invalidity of one should impact on the enforceability of the other.
The issue was whether the illegality of the termination for cause provision rendered the termination of employment without cause provision unenforceable.
Lower Court Decision
The motion judge dismissed the employee’s action, and awarded the employer $16,000 for costs. He concluded that the termination of employment without cause provision was a stand-alone, unambiguous, and enforceable clause.
Court of Appeal Decision
The court explained that an employment agreement must be interpreted as a whole and that the correct analytical approach was to determine whether the termination provisions in an employment agreement read as a whole violated the ESA. The court then stated:
“In conducting this analysis, it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked.”
As a result, the court found that the motion judge had erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.
Additionally, the court rejected the employer’s argument that it did not rely on the illegal termination for cause clause because a court must determine the enforceability of the termination provisions at the time the agreement was executed; therefore, non-reliance on the illegal provision was irrelevant. The court explained this is because where an employer does not rely on an illegal termination clause, it may nonetheless gain the benefit of the illegal clause.
Finally, the court declined to apply the severability clause to the termination provisions, explaining that a severability clause cannot have any effect on clauses of a contract that have been made void by statute. Because the court had already concluded that the two termination provisions must be read together, the severability clause could not apply to sever the offending portion of the termination provisions.
As a result, the court set aside themotion judge’s order.
Because the only defence the employer had to the action was its reliance on the termination without cause provision, the court ordered that the matter be remitted to the motion judge to determine the quantum of the employee’s damages and the costs of the action.
At Campbell Bader LLP, our Mississauga employment lawyers have been representing non-unionized employees in workplace disputes since 1999. We know that such disputes can be very stressful and can get emotional quickly. We seek to simplify the law so that you understand your options and make informed decisions. We leverage our extensive experience advising employers to provide insightful guidance to employees who are facing challenging circumstances at work. We work hard to protect you.
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