In a recent Ontario decision, the court found that a termination provision in an employment contract was unenforceable for its potential violation of employment standards legislation.
The employee was a construction employee working in the construction industry. He was first employed by the employer in 2012, and was laid off from time to time.
On November 10, 2015, he signed an employment agreement with the employer.
The employee was later placed on temporary layoff on October 10, 2017. The employee was not recalled to work and, in December 2017, he found alternate employment. No notice of this lay-off was given, nor did he receive any pay in lieu of notice from the employer.
In June 2018, the employee commenced an action in the Small Claims Court seeking damages for wrongful dismissal.
The employer claimed that the employment contract absolved it from any requirement to give any notice of the lay-off, or pay in lieu of notice. It also relied on the fact that as a construction employee, the employer had no obligation under the Employment Standards Act (“ESA”) to give notice or termination pay in lieu thereof.
The Employment Contract
The relevant provision at issue under the employment contract stated:
Termination of Employment
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 entitle[d] to absolutely no notice or pay and benefits in lieu thereof upon termination.
The termination provisions set for[th] 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.
Lower Court Decision
The Deputy Judge granted judgment in favour of the employee, awarding him damages equivalent to 9.5 weeks’ salary, which was equal to $9,530.
The Deputy Judge agreed with the employee’s submissions that the termination clause of the employment contract was void because it purported to contract out of the obligation under s. 60(1)(c) of the ESA to pay benefits during the statutory notice period and the presumption of reasonable notice was not rebutted by the employment contract.
The employer appealed.
Issues on Appeal
The employer claimed that the Deputy Judge erred by determining that it had purported to contract out of the obligations under s. 60(1) the ESA to pay benefits during the statutory notice period despite the fact that the employee was a statutory “construction employee” and not entitled to statutory notice under the ESA.
The court began by explaining that the common law principle of termination of employment on reasonable notice is a presumption, rebuttable only if a contract of employment clearly specifies some other period of notice. Additionally, a contract of employment is only enforceable if it complies with the minimum employment standards in the ESA. As a result, if it does not do so, then the presumption is not rebutted, and the employee is entitled to reasonable notice of termination.
However, the court also noted that some types of employees are not protected by the ESA, including those “prescribed individuals” under s. 3(5)12 of the ESA. Nonetheless, if an employee has two or more roles in their employment, and only one of these roles is not protected by the ESA, they will continue to be protected with respect to that other role as per s. 3(6) ESA. The court acknowledged that the employee fell within the definition of a prescribed individual as a construction employee under s. 2(1)9 of the ESA’s Regulation 288/01.However, the court then explained that the Regulation does not disentitle prescribed individuals to the protection of the entire ESA; rather, the inapplicability of the ESA to the employee is limited to those employment standards set out in s. 55 – being notice of termination and termination pay.
The court found that the error in the employment contract was twofold.
First, an employee cannot contract out of a protected employment standard under the ESA, even if that particular standard does not yet apply under s. 5(1). The court stated:
“It is sufficient if a provision of an employment contract potentially violates the ESA at any date after hiring […]. Accordingly, on the chance that [the employee]’s position at [the employer] changed to something other than a construction employee, the effect of the Employment Contract is that it denies [the employee] his right to benefits during his notice period, which is protected by the ESA. While the Employment Contract does refer to [the employee] being employed as an apprentice and that he will be working in the construction industry, it does not explicitly state that this applies only to him while occupied as a construction employee and that it would be of no force or effect if his position changed.”
Secondly, the court found that the termination provision of the employment contract also violated the ESA in a way that was not so remote, because as “prescribed” employees, construction employees may not be entitled to the employment standards governing the termination of employment or notice thereof, but they are still entitled to the employment standards guaranteed in the event of their severance. The court opined that if the employer grew in size, employing more than 50 employees and then discontinued its business, or else had a payroll more than $2.5 million, the employee would have been entitled to severance pay, irrespective of his job description. The court stated:
“The Employment Contract clearly disentitles [the employee] to these employment standards. Again, the potential violation of the ESA renders these provisions unenforceable.
Accordingly, […] even a potential violation of the ESA, no matter how remote, should be unenforceable.”
As a result, the court found that the termination provisions, read as a whole, clearly showed that the employment contract purported to contract out of the ESA in at least two ways and dismissed the appeal.
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