Employer’s Termination Clause Fails to Stand up to Court Scrutiny

Written on behalf of Peter McSherry
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Impacts from the global pandemic continue to affect various industries worldwide, including the employment sector across Canada. The economic impact on Canadians was, and continues to be, significant as many have lost their jobs or have had to reconsider their careers due to the pandemic. A recent Ontario Superior Court of Justice decision highlights the importance of working with an experienced employment lawyer if you find yourself in a situation involving a wrongful dismissal or have not been offered an appropriate severance package.

Employee terminated at the outset of the COVID-19 pandemic

In Tan v Stostac Inc., the employee began working as a “container controller” for the employer on June 1, 2015. The employee eventually worked his way up to the position of depot manager at the company.

The employee earned an annual salary of $67,500 and was enrolled in the employer’s benefits plan. He was also given an annual Christmas bonus ranging from $500 to $3,500, depending on the year.

The employer notified the employee that he was being terminated on May 28, 2020, and indicated that he would be laid off the following day. The employer stated that the termination was due to adverse economic conditions as a result of the COVID-19 pandemic. Following his termination, the employee could not secure alternative employment despite applying for over 80 positions.

Termination clause allows the employer to not provide payment in lieu of notice

The employee commenced a claim against the employer for wrongful dismissal. At the hearing, the employer relied on a termination clause in the employment contract which stated:

“The Employer may end the employment relationship at any time without advanced notice and without pay in lieu of such notice for any just cause recognized at law.

Subsequent to the probationary period, the Employee understands and agrees that employment may be terminated at any time by the Employer providing the Employee with two (2) weeks of notice, pay in lieu of notice or a combination of both, at the Employer’s option, plus one additional week of notice (or pay in lieu) for each year of completed service to a maximum of eight (8) weeks. In addition, after completing five (5) years of continuous employment, severance pay pursuant to the Ontario Employment Standards Act, 2000 may be payable upon termination of employment in accordance with the terms of the Ontario Employment Standards Act, 2000. Upon receipt of the above notice (and severance pay if applicable), the Employee agrees that no further amounts shall be owing to him/her on account of the termination of the Employee’s employment under statute or at common law. The provisions of the Ontario Employment Standards Act, 2000, as they may from time to time be amended, are deemed to be incorporated herein and shall prevail if greater.”

The employer argued that the termination clause permitted them to terminate an employee’s position for “any just cause” without providing payment for notice.

However, the Court noted that generally, the courts have held that such language is inconsistent with the province’s Employment Standards Act, which states that termination without notice is only allowed when an employee is “guilty of wilful misconduct, disobedience or wilful neglectful duty that is not trivial and has not been condoned by the employer.” The employment agreement included language stating that the Employment Standards Act provisions are deemed to be incorporated within the employment agreement and shall prevail if greater. However, the Court was required to determine whether this still enabled the employer to terminate an employee without notice.

Court says the clause suffers a fatal flaw

Justice Dineen found that the termination clause within the employment contract gave the employer the right to terminate an employment contract without notice of payment for just cause that might fall short of non-trivial willful misconduct.

The Court noted that the employer’s inclusion of language pertaining to the Employment Standards Act in the final sentence on the clause was not enough to allow the clause to stand, citing the decision of Waksdale v. Swegon North America Inc. from the Court of Appeal for Ontario.

Having determined that the employee was entitled to reasonable notice, the Court was then tasked with calculating a reasonable notice period. In its analysis, the Court considered the following factors:

  • the employee worked for the employer for 5 years;
  • the employee was 40 years old at the time of termination; and
  • the state of the economy at the time of the termination, which made it difficult for the employee to secure another job.

As such, the Court awarded the employee seven months of payment in lieu of notice. The Court also held that any Canada Emergency Response Benefits (CERB) the employee collected following the termination would not be deducted from the damages to be paid out by the employer.

The Lawyers at Peter A. McSherry Employment Lawyer in Guelph Help Employees Who Have Been Wrongfully Dismissed

Peter A. McSherry Employment Lawyer has been advising clients in the Guelph area on various employment law disputes for over 15 years. Our skilled employment law team frequently helps clients work through and resolve issues relating to cases of wrongful dismissal, constructive dismissal and unfair discipline. We regularly work with clients to review severance package offers and help them pursue other options when appropriate severance is not offered. Reach out to us online or by phone at 519-821-5465 if you have questions about your severance package following termination of your employment.