Are the Termination Provisions of my Employment Contract Enforceable?

Written on behalf of Peter McSherry

Many Canadian employees work for their employer pursuant to an employment contract. Generally, an employment contract sets out the expectations each party has with respect to the job the employee was hired for, including detailing rates of pay, job duties, and entitlement to holidays. They also typically include provisions regarding termination of employment, dictating how either party may end the employment relationship and what kind of payment the employee is entitled to if their employment is terminated with or without cause. Importantly, if the contract is ambiguous or unclear in any way, it may be considered void and of no effect. In the case of termination provisions, if they are void and of no effect, then it is up to the court to determine how much, if any, severance pay is owed to the departing employee, on a common law basis. In a recent decision, the Ontario Superior Court of Justice was asked to determine whether the termination provisions contained within an employment agreement were enforceable.

Employer Terminates Employment Without Cause

In the case of Ramcharan v Wesdome Gold Mines Ltd., the employee (“Vincent”) signed an employment contract when he was hired by Wesdome Gold Mines Ltd. (“Wesdome”) in 2018. The contract included, amongst other things, provisions with respect to Vincent’s base compensation, the bonus pay structure and stock option grants to which he was entitled, and a termination provision.

On November 1, 2019, Wesdome terminated Vincent’s employment without cause, which meant that Vincent had not engaged in any kind of behaviour which would warrant the termination of his employment. In keeping with the termination provision of his employment contract, Wesdome paid Vincent two weeks’ pay in lieu of notice pursuant to the Employment Standards Act, in addition to paying out Vincent’s accumulated unused vacation pay. Wesdome also continued to pay for his health and dental benefits for a specified period of time.

Employee Comments Wrongful Dismissal Claim

Vincent commenced a claim against Wesdome for wrongful termination. As part of his lawsuit, he claimed that the termination clause included in his employment contract was void and unenforceable because it violated the terms of the Employment Standards Act. As such, Vincent contended that he was entitled to receive wrongful termination damages as determined on a common law basis, instead of the two weeks’ pay which he was entitled to under the contract. Importantly, when reasonable notice damages are determined on a common law basis, the general “rule of thumb” is that the courts will award one month of notice per year of service. Additional months may be awarded to employees who were in positions of significant authority or those in highly skilled positions. As such, Vincent argued he was entitled to at least two months of payment under that interpretation, as opposed to the two weeks’ pay he was guaranteed under his contract.

The Termination Clause in Question

The termination clause in question provided that:

“This Agreement and your employment with the Company may be terminated at any time for just cause, without prior notice or any payment in lieu of notice or payment of any kind whatsoever, either by way of anticipated earnings or damages of any kind, by advising you in writing.

The Company may at any time terminate this Agreement and your employment, in accordance with the Employment Standards Act, (Ontario) (the “ESA“). The provisions of this paragraph will not apply in circumstances where you resign from employment or are terminated for cause. [Emphasis added.]”

Employment contracts are only valid if they accord with provincial laws. Any attempt to contract outside of the law can void the contract. In this case, Vincent argued that Wesdome violated the Employment Standards Act by stating that he would not be entitled to any kind of payment whatsoever, if he were to be terminated for cause.

The Employment Standards Act states that a person whose employment had been terminated must always be paid termination and/or severance pay, unless that employee engaged in wilful misconduct or wilful neglect of duty which was not condoned by the employer. Importantly, “wilful misconduct” or “wilful neglect of duty” does not necessarily equate to just cause. As such, there may be circumstances where an employer has the right to terminate someone’s employment for cause, but the cause was not so egregious as to rise to the level of wilful misconduct. In those circumstances, the terminated employee would still be entitled to minimum severance and termination payouts under the Employment Standards Act.

Non-Compliance with the Employment Standards Act Voids the Contract

If a termination provision fails to accord with the Employment Standards Act, then the entire contract can be considered null and void by the courts. In this case, Vincent argued that Wesdome had violated the Employment Standards Act because the termination provision stated that Vincent would not be entitled to receive any “payment of any kind whatsoever” if he were terminated for cause. Since the Employment Standards Act dictates that termination pay is always payable except in the very narrow circumstance of a wilful disobedience termination, this Court found that the termination provision did not comply with the legislation, writing that:

“In my view, the termination provision does not comply with the minimum requirements of the ESA.  If a termination provision in an employment contract violates the ESA – such as a “no notice if just cause” provision – all the termination provisions in the contract are invalid.”

The Termination Provision is Invalid and Inapplicable

Since the termination provision in question violated the law, it was void and of no force or effect. Moreover, Wesdome had not purported to terminate Vincent’s employment for cause, but also stated it did not have cause for termination. As such, the entire termination clause was considered to be void and of no force or effect in determining Vincent’s entitlement to damages.

As a result, the Court was asked to determine damages on the basis of common law reasonableness. In this case, the Court noted that Vincent:

• was 49 years old at the time of termination;
• had 25 years of experience in a niche industry;
• had 10 years of management experience; and
• had a high level of education and specialization.

As such, the Court awarded Vincent 6 months’ wages as reasonable notice damages. It should be noted that the Court also considered, when assessing damages, that Vincent had been unable to secure new employment by the time of trial, and that the global COVID-19 pandemic had started mere months after his termination.

Contact Guelph Employment Lawyer Peter McSherry Today

If you have recently been terminated from your employment and are wondering whether you have been treated fairly, or whether your employment contract is valid, the law offices of Peter A McSherry can help. Our team has extensive experience dealing with wrongful dismissal claims, severance packages and assessing employment contracts. We are well equipped to assist you in ensuring that you receive everything to which you are entitled and ensure that your rights as an employee are protected. Contact us today online or by telephone at 519-821-5465 to schedule a confidential consultation.