Employers will not-so-fondly remember the 2020 Ontario Court of Appeal decision in the case of Waksdale v. Swegon North America Inc., which single-handedly rendered many termination clauses across the province unenforceable.
The new decision of the Ontario Superior Court of Justice in the case of Dufault v. the Corporation of the Township of Ignace should not cause quite the same widespread panic as did Waksdale. However, the court’s decision did strike another significant blow to termination language and as a result, it’s once again time for employers to review their employment agreements.
The major takeaway from Dufault is that employees cannot have their employment terminated “at any time.” However, in 2022, the Ontario Superior Court in Henderson v. Slavkin et. Al. upheld language allowing an employee to be terminated “for any reason.”
The Dufault facts
Karen Dufault’s employment as a Youth Engagement Coordinator was terminated after just over a year of service on January 26, 2023. Ms. Dufault was employed on a fixed-term agreement set to terminate two years later, on December 31, 2024.
The termination language in Ms. Dufault’s employment agreement purported to limit her to the greater of two weeks of notice per year of service to a maximum of four months, or to her entitlements under the Employment Standards Act, 2000 (ESA). Upon termination, Ms. Dufault was provided with two weeks of notice.
Ms. Dufault commenced a claim against her employer for wrongful dismissal and sought approximately two years of salary and benefits, reflecting the balance of the fixed-term agreement. Ms. Dufault argued that the termination language in her agreement was unenforceable for a number of reasons, including that the without cause language allowed for the termination of her employment “at any time.” The most relevant portion of the termination language for this blog reads as follows:
“The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving the Employee written notice as follows…” [emphasis added]
The decision
Justice Pierce found that the termination clause at issue was unenforceable for a number of reasons, including invalid for-cause language (see Waksdale). However, the court also held that the termination clause was not enforceable because it provided that the employee could have their employment terminated at any time.
The reason this language is not enforceable is that the ESA prohibits an employer from terminating an employee in reprisal for attempting to exercise a right under the ESA (section 74), as well as when an employee concludes a statutory leave (section 53). The Court therefore found that the termination language contravened the ESA, rendering it unenforceable, and taking the entirety of the termination language down with it.
Because Ms. Dufault was on a fixed-term contract, she was provided with the remaining CA$157,071.57 of salary and benefits owing to her. This case therefore also serves as another good reminder as to how fixed-term agreements can be risky for employers, unless very carefully drafted.
What about Henderson v Slavkin?
In 2022, the Ontario Superior Court in Henderson v. Slavkin et al., found that the termination language below was enforceable:
“Your employment may be terminated without cause for any reason upon the provision of notice equal to the minimum notice or pay in lieu of notice and any other benefits required to be paid under the terms of the Employment Standards Act, if any.” [emphasis added]
Despite all of the sections in the ESA and other relevant legislation that prohibit termination in certain circumstances (i.e. the language in sections 53 and 74, as set out above), the Court did not find that the “for any reason” language rendered the termination clause invalid, although the termination language was held invalid for other reasons.
The Court in Henderson found that the “for any reason” language was not invalid because the employer clearly intended to ensure the plaintiff would receive their minimum entitlements under the ESA and that to interpret the clause otherwise would create ambiguity where none existed.
Justice Pierce in Dufault cites Henderson, which was also cited by the Defendant, but it comes to a different conclusion. Ultimately we don’t know the reason for this, as the court didn’t provide a justification for the differentiation.
It will be interesting to see whether Dufault is appealed to the Ontario Court of Appeal, and whether we will see a court expressly distinguish the Dufault and Henderson decisions.
In conclusion, it appears employees may be terminated for any reason, but not at any time. The Ontario termination clause rulebook has been further annotated and employers may yet again be headed back to the drawing board with their employment agreements. For any questions about this decision or other employment matters, please contact a member of our Ontario employment law team.
