Termination Clauses and Employment Law Ruling
08Aug

Termination Clauses Under Fire: Lessons from Ontario’s Courts

In a decision that continues to shape Ontario employment law, the Ontario Court of Appeal’s ruling in Rahman v. Cannon Design Architecture Inc. highlights two critical lessons for employers: how termination clauses must be drafted, and what it means to be a common employer.

Background: A Senior Role, a Short Exit

Farah Rahman joined CannonDesign in 2016 as a Senior Architect, Principal, and Office Practice Leader in Toronto. In that role, she oversaw business operations for the company’s Canadian offices and reported directly to U.S.-based executives. She was not just a technical leader but a key strategic figure in the organization’s operations north of the border.

Over the next four years, Rahman’s responsibilities expanded, and she became the company’s most senior Canadian employee. Her work extended across multiple jurisdictions, and she held several corporate officer roles with the parent and affiliated companies.

In April 2020, Rahman was terminated without cause. She received four weeks’ base salary as termination pay the amount specified in her employment agreement. Believing that the amount was insufficient and that the contract itself was unenforceable, she brought a wrongful dismissal claim to the courts.

The Legal Challenge

Rahman challenged two key aspects of her dismissal:

  • That the termination provisions in her contracts were void because they violated the Employment Standards Act, 2000 (ESA); and
  • That all three entities involved in CannonDesign’s operations, not just the Canadian subsidiary,  should be treated as her common employers and held liable.

The motion judge initially dismissed her claim, siding with the employer. But Rahman appealed, and the Court of Appeal sided with her.

Christopher Achkar - Employment Lawyer

As Christopher Achkar, employment lawyer and founder of Achkar Law, explains:

“This case is a wake-up call for every employer operating with outdated or boilerplate employment agreements. It reinforces that even a sophisticated employee’s contract can be struck down if it doesn’t meet Ontario’s employment law standards.

Employers must review their agreements carefully or risk serious financial exposure.” 

What the Court Found

1. Termination Clause Was Void

The employment agreement allowed the employer to terminate Rahman’s employment without notice if there was “just cause.” But under Ontario law, employers may only terminate without notice in limited cases of “wilful misconduct.” This is a much higher threshold than just cause.

Because the contract did not clearly make that legal distinction, the Court found it to violate the ESA and therefore unenforceable. As a result, Rahman became entitled to reasonable notice under common law, which can be significantly greater than ESA minimums.

2. Common Employer Doctrine Applied

While Cannon Design Architecture Inc. was the legal employer on paper, the Court found that Rahman’s work was directed and controlled by multiple entities within the CannonDesign corporate group.

Key evidence included:

  • Shared branding, pay structures, and internal communications
  • Overlapping roles and responsibilities across corporate entities
  • Bonus structures and salary adjustments dictated by the U.S. parent company

The Court held that all three entities were common employers and jointly liable for any damages.

What Employers Can Learn from Rahman

1. Termination Clauses Must Be ESA-Compliant

A contract clause that says an employee can be terminated without notice for “just cause” without tying that to “wilful misconduct” can void the entire termination section. Even if the employee receives ESA minimums at termination, that alone doesn’t save the contract.

2. Corporate Structure Matters, But So Does Control

Even if one entity is named as the employer, the courts will look at the reality of the working relationship. If multiple entities direct, supervise, or benefit from an employee’s work, they may be found to be common employers and share liability.

Why This Case Matters for Employers in Ontario

This case reinforces the courts’ strict approach to termination provisions in employment agreements. It confirms that:

Wording matters more than intentions subjective factors like legal advice or seniority will not save a clause that fails to meet ESA standards.

Integrated corporate structures must be managed with care, particularly when assigning employment responsibilities across parent, subsidiary, and affiliated entities.

Need Help with Employment Contracts or Multi-Entity Liability?

Whether you’re a growing organization or part of a larger corporate group, it’s essential to ensure your employment agreements are compliant and your corporate structure does not expose you to unintended legal liability.

Speak with a workplace lawyer at Achkar Law today. 

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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. ©