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The stakes were high for both parties in a recent case before the Ontario Superior Court of Justice. In Tarras v. The Municipal Infastructure Group Ltd., the plaintiff was employed as the director of a company. In that capacity, he was involved in the drafting of his employment contract which contained a termination clause. Despite his involvement with drafting this clause, the court was tasked with determining whether the clause could be enforced. 

This is a unique situation compared to typical contract disputes, in which the sophistication of the parties involved and their involvement in drafting would have weighed in favour of permitting enforcement by the defendant employer.

Employee terminated without cause two years before contract set to end

The case of Tarras v. The Municipal Infastructure Group Ltd., dealt with a wrongful dismissal claim made by the plaintiff employee who was the director of The Municipal Infrastructure Group Limited (the “employer”). The employee sold his interest in the employer company alongside other former owners in December 2019 to an international engineering firm. The employee had arranged an employment agreement with the employer to hold the role of vice-president until December 2022. The agreement provided for an annual salary of $250,000 with benefits and other forms of compensation.

The employee was terminated in November 2020 without cause. The employee brought this case before the court through a motion for summary judgment.

The employment agreement had its own termination clauses

The employment agreement touched on the terms of termination in section 11. The relevant paragraphs of the termination clause are as follows:

11 (a)   Termination for Cause. TMIG may terminate Employee’s employment hereunder for “Cause” immediately upon delivery of a written termination notice to Employee. “Cause” means the repeated and demonstrated failure on Employee’s part to perform the material duties of his/her position in a competent manner, which Employee fails to substantially remedy within  a reasonable period of time after receiving written warnings and counseling from TMIG; Employee engaging in theft, dishonesty or falsification of records; Employee willful refusal to take reasonable directions after which Employee fails to substantially remedy after receiving written warnings from TMIG; or any act(s) or omission(s) that would amount to Cause at common law. In the event that Employee’s employment hereunder is terminated pursuant to the provisions of section 11 (a), Employee shall not receive payment of any kind, including notice of termination or payment in lieu thereof, or severance pay, if applicable, save and except accrued and outstanding salary and vacation pay.

(b)   Termination Without Cause. TMIG may terminate Employee’s employment in it’s sole discretion for any reason whatsoever without Cause or upon expiry of the Term, by providing Employee with notice of termination, or payment in lieu thereof, or a combination of both, and severance pay, if applicable, pursuant to the Ontario Employment Standards Act, 2000. In addition, TMIG will continue to pay its share of employees benefits, if any, for the duration of the notice of termination., pursuant to the employment standards act of 2000. TMIG will also provide Employee any accrued and outstanding salary and vacation pay.”

The minimum employment standards employers must meet in Ontario

The Employment Standards Act sets out the minimum standards which employers owe their employees. Although employers are able to offer their employees employment contracts that exceed these minimum standards, employers cannot conversely contract out of those standards. 

Employers should also consider the regulations which outline additional standards that must be met. For instance, Ontario Regulation 288/01 provides that employees who are found to be “guilty of willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer” don’t have the same entitlements. These employees do not have to receive notice of termination, termination pay, or severance pay.

Employment disputes are decided differently than contract disputes

In considering the motion, the court first began by examining what the employment agreement contemplated for an employee to be terminated “for cause”. The court looked at the terms used in section 11(a) of the employment agreement and determined that it did not use wording contained in the Employment Standards Act, it instead contained phrases like “any acts or omissions that would amount to cause at common law”. While employers can terminate employees through agreements like the one in this case, courts continue to hold that provisions that contravene the Employment Standards Act render an entire employment agreement void.

The employer submitted that the employee had helped draft his own employment agreement, had legal counsel to assist throughout negotiations, and has “significant commercial experience.” These arguments may have been more persuasive in a contract dispute, but disputes involving employment contracts work differently. In employment law, courts have acknowledged the inherent power imbalance that exists between employees and employers. Employment cases that have ruled otherwise have been found to be an error of law.

Court finds termination clause unenforceable

Because the termination provision at section 11(a) conflicts with the standards set out in the Employment Standards Act, the court found the termination clause in its entirety to be unenforceable. The motion for summary judgment was found in favour of the plaintiff. The plaintiff was awarded his salary for the balance of the contract (23 months), which amounted to $479,166.67. 

The parties were left to arrange the quantum of vacation pay, incentive compensation plan, and other benefits for that same period.

Contact the Employment Lawyers at Bader Law to Help Employment Contract Disputes

The trusted employment lawyers at Bader Law help demystify employment and human rights laws for both employees and employers. Our team helps simplify the law to help clients understand all of their options and make informed decisions. Our lawyers regularly advise employees and employers on discrimination, accommodation of disability and illness, harassment, wrongful dismissalseverance packages, and more. Call us at 289-652-9092 or contact us online to schedule a consultation with a member of our experienced employment law team.