Termination Clauses Under Fire: Lessons from Rahman v. Cannon Design Architecture Inc.

Termination Clauses and Common Employer Liability: Lessons from Rahman v. Cannon Design Architecture Inc. (2022 ONCA 451)

Rahman v. Cannon Design Architecture Inc. (2022 ONCA 451) is one of the most instructive post-Waksdale decisions for Ontario employers. The Ontario Court of Appeal addressed two of the most consequential issues in employment contract law: whether a termination clause survives ESA scrutiny, and when multiple entities within a corporate group are jointly liable for an employee's damages. Employers who rely on standard "just cause" language in their contracts, or who operate through complex corporate structures, should read this decision carefully.

Case

Rahman v. Cannon Design Architecture Inc.

Citation

2022 ONCA 451

Court

Ontario Court of Appeal

Outcome

Appeal allowed termination clause void; common employer liability established

The two principles this case confirms

A termination clause using "just cause" language without the ESA's wilful misconduct standard is void and the entire termination clause falls, not just the offending provision. Multiple entities that jointly direct, control, or benefit from an employee's work may be found to be common employers, jointly liable for damages.

Both principles carry significant financial exposure for Ontario employers. The first, flowing directly from Waksdale v. Swegon North America Inc. (2020 ONCA 391), means that standard "for cause" language continues to void otherwise valid notice caps regardless of whether the employer paid ESA minimums at termination. The second means that the entity named on the employment contract is not necessarily the only entity that will be on the hook when the employment relationship ends. See our full guide on when termination clauses are unenforceable in Ontario.

Do your Ontario employment agreements use "just cause" or "for cause" language or does your organization operate through parent, subsidiary, or affiliated entities that jointly manage employees?

Both are significant liability exposures confirmed by this decision. Get your agreements and corporate structure assessed before the next termination forces the issue.

Call: 1-800-771-7882 Review My Employment Agreements

Background: the employment and its termination

Farah Rahman joined CannonDesign in 2016 as a Senior Architect, Principal, and Office Practice Leader in Toronto, overseeing business operations for the company's Canadian offices and reporting to U.S.-based executives. Over four years her responsibilities expanded significantly she became the organization's most senior Canadian employee, held corporate officer roles across the parent and affiliated entities, and had her compensation determined in part by the U.S. parent company.

In April 2020, Rahman was terminated without cause and received four weeks of base salary the amount specified in her employment agreement. She challenged both the enforceability of that clause and which entities were liable for her damages. The motion judge dismissed her claim. The Court of Appeal allowed the appeal on both grounds.

What the Court of Appeal found

Finding 1

Termination clause void the for-cause problem

The employment agreement permitted termination without notice "for just cause." Under Ontario's Employment Standards Act, 2000, the standard for dismissal without notice is not just cause in the common law sense it is "wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer." The contract's "just cause" language did not incorporate that ESA standard. Applying Waksdale, the Court found the non-compliant for-cause provision rendered the entire termination clause void. Rahman was entitled to common law reasonable notice, not the four weeks the agreement provided.

Finding 2

Common employer doctrine applied across the corporate group

Although Cannon Design Architecture Inc. was the named employing entity, the Court found that Rahman's work was directed and controlled by multiple entities within the CannonDesign corporate group. The evidence established that the working relationship extended across corporate entities in a way that made it appropriate to treat all three as common employers, jointly liable for any damages awarded. The corporate structure as it appeared on paper did not reflect the reality of how the employment relationship operated.

The evidence that established common employer liability

Shared branding, pay structures, and internal communications across the corporate entities

Overlapping roles Rahman held corporate officer positions with the parent and affiliated companies simultaneously

Bonus structures and salary adjustments directed by the U.S. parent, not the Canadian subsidiary alone

Reporting relationships extending to U.S.-based executives outside the named employing entity

The motion judge dismissed Rahman's claim in part because she was a senior, legally sophisticated employee who had agreed to the contract terms. The Court of Appeal explicitly rejected that reasoning. The ESA standard for termination clause enforceability is objective it does not vary based on the seniority, sophistication, or legal representation of the employee at signing. A clause that fails the ESA analysis fails regardless of who negotiated and signed it.

Key lessons for Ontario employers

"Just cause" language voids the entire clause

A termination clause that permits dismissal without notice "for just cause" without tying that threshold to the ESA's wilful misconduct standard is non-compliant. Under Waksdale, a non-compliant for-cause provision voids the entire termination clause, including any otherwise valid without-cause notice cap. The fix is not to remove the cause provision it is to draft it using ESA-compliant language. Standard boilerplate language drafted before 2020 almost certainly requires revision.

ESA payment at termination does not save the clause

CannonDesign paid Rahman four weeks of base salary the ESA minimum when terminating her employment. That payment did not save the clause. Enforceability is assessed against the clause as drafted, not against what the employer chose to pay at termination. An employer who pays ESA minimums does not thereby validate a non-compliant termination clause. The clause must comply at the time of drafting to limit the notice obligation.

Corporate structure is assessed by operational reality

The common employer finding in Rahman is a warning for employers operating through holding companies, parent-subsidiary structures, or shared service arrangements. Courts look at who actually directed and controlled the employee's work not at which entity is named on the employment agreement. Shared compensation decisions, overlapping officer roles, and integrated operations across entities are the kinds of evidence that establish common employer liability and extend it beyond the named employer.

A motion court win does not guarantee the final outcome

The motion judge sided with the employer. The Court of Appeal reversed on both grounds. Employers who succeed at the motion stage in employment litigation should not assume the exposure is resolved appellate courts have been consistent in applying strict ESA scrutiny to termination clauses in the post-Waksdale period.

Do your Ontario employment agreements comply with post-Waksdale standards and does your corporate structure create common employer exposure?

Both questions carry significant financial consequences and require a review of your specific agreements and operating arrangements before a termination forces the issue.

Review My Employment Agreements Or call us: 1-800-771-7882

Related resources

For a complete guide to how Ontario termination clauses fail the Waksdale rule, the for-cause trap, sub-ESA language, and what employers should do see: When Is a Termination Clause Unenforceable in Ontario?

For employers reviewing or updating employment agreements, see our employment agreement drafting and review services.

Call us at 1-800-771-7882 for a confidential consultation.

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©

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