Employers must remember that any employment contract must comply with statutory standards and those set out in court decisions. When a clause of an employment agreement does not comply with these required standards, the agreement can be deemed invalid in its entirety. If that is the case, an employee dismissed within the terms of the employment contract may be found to have been wrongfully dismissed.
Employers’ retirement plan was to sell off their practice
In a recent case before the Ontario Superior Court of Justice, Henderson v. Slavkin et al, the employers hired the employee as the receptionist of their oral surgery dental offices. The employers were two oral surgeons who opened the practice together in the 1970s. The employee was hired in April 1990 and was terminated in April 2020. At the time of termination, the employers provided the employee with a reference letter.
As oral surgeons, the employers were reliant on referrals to generate business. Most clients of oral surgeons do not require regular checkups or appointments. Often, their clients would see them once or a few times before the relationship was effectively complete. Because of the reliance on referrals to generate business, selling an oral surgeon’s practice is generally more challenging than a family dentistry practice, where clients can be passed on with the business.
In 2015, the employers began to think about retirement. They hoped to sell the oral surgery dental offices to another oral surgeon. In anticipation of this, the employers prepared employment contracts to help their employees better understand what could happen with their upcoming retirements.
New employment agreement allowed for termination without cause
Accompanying the new employment contract was a letter explaining the new employment policies. The employees were offered $500.00 to sign the agreement. If they chose not to sign it, they would be terminated. Clause 13 of the new employment agreement provided:
13. Your employment may be terminated without cause for any reason upon the provision of notice equal to the minimum notice or pay in lieu of notice and any other benefits required to be paid under the terms of the Employment Standards Act, if any. By signing below, you agree that upon receipt of your entitlement under the Employment Standards Act, no further amount shall be due and payable to you, whether under the Employment Standards Act, any other statute or common law.
After two days, the employee signed the agreement and continued to work for the employers. In January 2019, the employers closed their office in the Greater Toronto Area. By February 2019, the hours of operation at their Bolton location were reduced to two and a half days per week.
Was the employee wrongfully dismissed?
One of the employer surgeons was set to retire in August 2019. In need of a plan, they had a meeting in which they determined that it was not possible to sell off the practice. In November 2019, all employees were brought together and informed that their employment would be terminated with the final employer’s retirement in April 2020. The employee at issue in this litigation was terminated just after the start of the COVID-19 pandemic.
Before the Ontario Superior Court of Justice, one of the main issues was whether the employee’s termination constituted a wrongful dismissal. Specifically, the Court examined if the termination clause (clause 13) was unenforceable and unconscionable. The Court also considered Clauses 18 and 19, which named conflicts of interest and confidential information as the bases for dismissal for cause.
Principles for the enforceability of a termination clause
In commencing its analysis, the Court considered the principles set out in Wood v. Fred Deeley Imports Ltd. The Ontario Court of Appeal in Wood described the principles to consider when determining the enforceability of a termination clause:
- Employees have less bargaining power than employers when employment agreements are made;
- Employees are likely unfamiliar with employment standards in the Employment Standards Act and thus are unlikely to challenge termination clauses;
- The Employment Standards Act is remedial legislation. As such, courts should favour interpretations of the Act that encourage employers to comply with the minimum requirements of the Act and extend its protection to employees;
- The Employment Standards Act should be interpreted in a way that encourages employers to draft agreements which comply with the Act;
- A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Employees are entitled to know at the beginning of an employment relationship what they are entitled to at the end of their employment; and
- Courts should prefer an interpretation of the termination clause that benefits the employee more.
Additionally, the Court acknowledged that any employment agreement that does not comply with the Employment Standards Act is invalid.
The termination clause complied with employment standards in Ontario
In the trial of the Henderson case before the Ontario Superior Court, the employee argued that Clause 13 of her contract, in particular, was unclear. She submitted that the clause did not provide for the payment of severance pay as required by the Employment Standards Act. It also did not explain the payment of vacation pay within the notice period set out in the Act.
Additionally, the employee stated that Clause 13 was unenforceable because employees cannot contract out of the protected standards in the Employment Standards Act.
However, the Court disagreed with the employee that there was any inconsistency between the termination clause (Clause 13) and the Employment Standards Act. It found no ambiguity in the clause concerning severance or vacation pay during the notice period. On the contrary, the wording of the clause demonstrated compliance with the employment standards, so it was therefore ruled to comply with the Employment Standards Act.
Other clauses in the contract were unduly broad and vague
Although the termination clause was valid and compliant with the Employment Standards Act, further clauses were not. Clause 18 of the employment contract pertained to conflicts of interest. It held that a failure to comply with the terms constituted a breach of the agreement and cause for termination without notice or compensation in lieu of notice.
However, on analyzing the text of that clause, the Court found it to be overly broad and ambiguous. It appeared certain words were missing from a term within the clause, which the employee could not reasonably imply on her own.
Similarly, Clause 19 of the employment contract about confidential information was invalid. This clause also provided that a breach would justify termination without notice or compensation in lieu of notice. This clause was also found to lack clarity. There was no specific guidance provided for which circumstances of disclosure of confidential information would not be a breach of the term. The clause also did not leave room for inadvertent disclosures or where there was a trivial breach.
Non-compliant causes rendered the entire contract void
The Court ruled that the employee was wrongfully dismissed. Although Clause 13 was compliant with the Employment Standards Act, Clauses 18 and 19 were not. Therefore, the employment contract, as a whole, was invalid.
Bader Law Advises Mississauga Employers on Employment Contracts & Termination
The knowledgeable employment lawyers at Bader Law provide robust, pragmatic advice to employers in Mississauga and the surrounding areas. We help draft effective employment contracts and review existing agreements to ensure our client’s risk is reduced. To schedule a consultation with a member of our employment law team, please call 289-652-9092 or reach out online.