Two recent decisions from the Ontario Superior Court of Justice ("ONSC")—Li v. Wayfair Canada Inc. [Li]and Jones v. Strides Toronto [Jones]—offer a welcome development for employers concerned about the enforceability of termination clauses that limit termination entitlements to the minimum standards under the Employment Standards Act, 2000 ("ESA"), particularly those that permit termination of employment "at any time".
These decisions were released in the wake of Dufault v. The Corporation of the Township of Ignace [Dufault], in which the ONSC struck down a termination clause for ESA non-compliance, most notably because it granted the employer "sole discretion" to terminate employment "at any time". While the employment agreements in Li and Jones also used the words "at any time", both courts distinguished Dufault, confirming that such language is not automatically fatal if the agreement, read as a whole, complies with the ESA.
Li v. Wayfair Canada
In Li, the ONSC upheld a termination provision that allowed the employer to terminate employment "at any time and for any reason" and limited the employee's entitlements to "only" the minimum standards under the ESA. The employee, who was dismissed after less than nine months of employment, argued that the clause was void for ambiguity and failed to comply with the ESA, relying heavily on Dufault.
The Court rejected that argument, distinguishing Dufault and emphasizing that the termination clause must be interpreted as a whole. The agreement repeatedly referenced the ESA and explicitly defined "Cause" in accordance with the ESA standard of wilful misconduct. The Court found that the clause did not contract out of the ESA and that the employee was not entitled to reasonable notice at common law.
Jones v. Strides Toronto
In Jones, the employee challenged a termination clause that limited her entitlements to the minimum standards under the ESA plus one additional week of notice for each completed year of service. She argued that the clause was unenforceable on several grounds, including the inclusion of "at any time" language in the "without cause" provision.
The ONSC rejected that argument, distinguishing Dufault and holding that the words "at any time", on their own, do not violate the ESA. The Court emphasized that Dufault involved language granting the employer "sole discretion" to terminate employment at any time, which could potentially permit termination in reprisal for exercising a right under the ESA or during a protected leave, contrary to the ESA. In contrast, the clause in Jones lacked that discretionary qualifier.
However, the Court ultimately found the entire termination clause unenforceable due to ambiguity in the "with cause" section. That provision stated that employees terminated for "just cause" at common law would receive "those amounts set out in (a) above", which the Court found could reasonably be interpreted to exclude ESA-required benefit continuation, rendering the clause void.
As a result, despite the "without cause" section being ESA-compliant, the ONSC refused to enforce the termination clause and awarded the employee reasonable notice at common law.
Where Does This Leave Employers?
While Li and Jones offer reassurance for employers seeking to enforce termination clauses, they do not eliminate the concerns raised in Dufault. In that case, the ONSC struck down a termination clause that gave the employer the "sole discretion" to terminate employment "at any time", finding that such language violated the ESA because it could permit termination in circumstances the ESA prohibits. The decision raised concerns for employers relying on similarly worded provisions.
Although Li and Jones suggest that courts may be adopting a more contextual and balanced approach to interpreting termination clauses, the tension between these decisions and Dufault remains unresolved.
Notably, the Ontario Court of Appeal and the Supreme Court of Canada declined to hear the employer's appeal in Dufault, reinforcing its continued authority. In contrast, Li and Jones are decisions of the ONSC and could still be appealed. As such, the law in this area remains unsettled, and employers should review their termination clauses carefully in light of this shifting landscape.
Key Takeaways for Employers
These decisions offer the following key takeaways:
- Review and update your agreements: Termination clauses can still be upheld, but only if they are precisely drafted and fully comply with the ESA, including requirements for benefits continuation and severance pay, where applicable. Both courts gave weight to language affirming the employer's intent to comply with the ESA. Including such language can help increase the likelihood that the clause will be enforced.
- Be mindful of conflicting case law: While Li and Jones provide some reassurance, Dufault remains binding authority and may still be applied depending on the circumstances and wording of the clause.
- Monitor for appeals: The Li and Jones decisions could still be appealed. Employers should stay informed as the law continues to evolve and seek legal advice before relying on similar contractual language.
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