Ontario Court Ruling’s and Employment Termination Clauses

In a landmark ruling that could reshape the landscape of employment law in Ontario, the Ontario Superior Court of Justice’s decision in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, casts new light on the enforceability of termination clauses within employment contracts. This decision not only adds to the complex tapestry of employment legislation but also sends a clear message to employers and employees about the critical importance of adhering to the Employment Standards Act, 2000 (ESA) when drafting employment agreements. As we delve into the details of the case and its implications, employers and employees alike will find valuable insights into navigating the legal intricacies of termination provisions and ensuring their employment contracts are both fair and compliant with Ontario’s evolving legal standards.

The Ontario Superior Court of Justice recently decided Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”), adding another phrase that renders termination provisions unenforceable. 

Background of Dufault v. The Corporation of the Township of Ignace

The Case That’s Changing Employment Contract Law in Ontario

The plaintiff, Karen Dufault (“Ms. Dufault”), commenced her employment with the Township of Ignace (“the Township”) in October 2021. In January 2022, Ms. Dufault accepted a new role as a Youth Engagement Coordinator at the Township. In November 2022, she entered a fixed-term agreement to conclude in December 2024. However, Ms. Dufault was dismissed in January 2023 without cause. The decision focuses on the termination clause in this fixed-term contract. 

The Controversial Termination Clauses: A Closer Look

For Cause vs. Without Cause: Understanding the Distinction

 The termination clause in Ms. Dufault’s contract states: 

4.01 The Township may terminate this Agreement and terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee’s employment is terminated with cause, no further payments of any nature, including but not limited to, damages are payable to the Employee, except as otherwise specifically provided for herein and the Township’s obligations under this agreement shall cease at that time. For the purposes of this Agreement, “cause” shall include but is not limited to the following: 

(i) upon the failure of the Employee to perform the services as hereinbefore specified without written approval of Municipal Council and such failure shall be considered cause and this Agreement and the Employee’s employment terminates immediately; 

(ii) in the event of acts of willful negligence or disobedience by the Employee not condoned by the Township or resulting in injury or damages to the Township, such acts shall be considered cause and this Agreement and the Employee’s employment terminates immediately without further notice. 

4.02 The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows: 

(i) the Township will continue to pay the Employee’s base salary for a period of two (2) weeks per full year of service to a maximum payment of four (4) months or the period required by the Employment Standards Act, 2000 whichever is greater. This payment in lieu of notice will be made from the date of termination, payable in bi-weekly installments on the normal payroll day or on a lump sum basis at the discretion of the Township, subject at all times to the provisions of the Employment Standards Act, 2000. 

(ii) with the exception of short-term and long-term disability benefits, the Township will continue the Employee’s employment benefits throughout the notice period in which the Township continues to pay the Employee’s salary. The Township will continue the Employee’s short-term and long-term disability benefits during the period required by the Employment Standards Act, 2000 and will pay all other required accrued benefits or payments required by that Act. 

(iii) all payments provided under this paragraph will be subject to all deductions required under the Township’s policies and by-laws. 

(iv) any further entitlements to salary continuation terminate immediately upon the death of the Employee. 

(v) such payment and benefits contributions will be calculated on the basis of the Employee’s salary and benefits at the time of their termination. 

The Ontario Superior Court’s Findings

Implications of Limiting Notice Period Pay and Benefits

The Court deemed the termination provisions in paragraph 4 unenforceable as they did not comply with the Employment Standards Act, 2000, for the following reasons. 

Firstly, the ESA does not mention dismissals “for cause”, which is a common law concept. The ESA’s regulations state an employee is not entitled to notice pay when they are guilty “of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”.  

Ms. Dufault’s contract refers to “for cause” termination, and purported to grant the Township the ability to terminate her without providing notice for behaviour that did not meet the ESA’s standards – attempts to provide an employee with less than their minimums under the ESA are prohibited. 

Secondly, paragraph 4.02, the “without cause” termination paragraph, was also deemed to violate the ESA. Paragraph 4.02 attempts to limit notice period pay to the employee’s “base salary”, however, section 60 of the ESA states an employee is entitled to receive all “regular wages” during their notice period. The Court also noted vacation pay and sick days were not explicitly referenced in paragraph 4.02, which would form part of Ms. Dufault’s “regular wages”. Attempts to reduce an employee’s wages throughout their notice period contravenes the ESA.  

The two reasons above have appeared in Ontario’s case law in the past. The third reason provided by the Court for finding the termination clause unenforceable is the most notable. 

The Court held Ms. Dufault’s “without cause” termination paragraph 4.02 implied that the Township had the authority to terminate her “at any time” and solely at their discretion. The Court provides its reasoning as follows:  

 [46] The plaintiff submits that Article 4.02 misstates the ESA when it gives the employer “sole discretion” to terminate the employee’s employment at any time. I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee’s leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute. 

As a result, the Court awarded the plaintiff the balance remaining in their fixed-term agreement. 

Implications for Employers and Employees in Ontario

Strategic Considerations for Drafting Employment Contracts

The decision in Dufault is significant because it marks a new reason where a Court has invalidated a “without cause” termination provision. In accordance with Dufault, an employer cannot rely on an employment contract’s termination clause if it allows the employer to terminate the employee using its “sole discretion” at “any time”.  

This case emphasizes how important it is for employers to have their employment agreements regularly reviewed by their employment lawyer. All employees and employers should seek legal advice regarding their employment contracts in light of this change.  

Need Guidance on Employment Contracts? Achkar Law Can Help

The complexities of employment contracts can be challenging, whether you’re drafting a new agreement, questioning the enforceability of your current contract, or facing issues following an unjust termination. The recent Ontario Superior Court’s decision in Dufault v. The Corporation of the Township of Ignace underscores the importance of ensuring that employment contracts comply with the latest legal standards and protections.

At Achkar Law, we understand how crucial it is for both employers and employees to have contracts that are not only fair but also legally sound. Our team of dedicated employment lawyers specializes in providing comprehensive advice and representation in all aspects of employment law, including:

• Drafting and Reviewing Employment Contracts: Ensure your contracts are up to date with current laws and regulations.
• Evaluating Contract Enforceability: If you have doubts about your contract’s terms, we can provide clarity and guidance.
• Addressing Unjust Termination: If you believe you’ve been unjustly terminated, our legal professionals are here to defend your rights and seek justice.

Don’t face these complex issues alone. Contact Achkar Law today for a 60-minute consultation with one of our experienced employment lawyers. We’re committed to delivering personalized, effective solutions tailored to your unique situation and needs.

Together, we can ensure that your employment contracts serve your best interests and protect your rights under the law. Reach out to us now to secure your consultation and take the first step towards resolving your employment law concerns.

Toll-free: 1 (800) 771-7882 | Email: [email protected]

 

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