Written on behalf of Peter McSherry

When an employee is hired to work for a particular employer, the parties often reduce the terms of the agreement to writing to ensure that both parties clearly understand their rights and obligations under the employment agreement. Typically, employment contracts include details regarding compensation to be paid to the employee, the hours to be worked by the employee, and a description of employment duties.

Moreover, many employment contracts include a provision concerning termination. Such clauses typically dictate how and on what terms the employer may sever the employment relationship and often distinguish between termination “for cause” and “without cause.” Thus, when an employer terminates an employee’s employment, the parties refer to the termination clause of the employment contract to ensure that the contract pays compensation.

As such, it is critical that such clauses, and employment contracts in general, be drafted using careful language to ensure that the agreement’s actual terms are accurately reflected in the contract itself. Should that not be the case, it is up to the courts to assess damages without valid contractual terms.

Validity of Termination Clause Questioned in Wake of Termination of Employment

The recent case of De Castro v Arista Homes Limited provides an excellent illustration of how termination clauses operate. The case involved an employee whose employment with the defendant employer had been terminated without cause. Following the termination clause of the applicable employment contract, the employee was limited in the event of termination without cause to statutory severance pay by the Employment Standards Act, 2000, which in this case amounted to four weeks’ salary.

Despite having been terminated without cause, the employee considered that the language used in the termination clause applicable to termination with cause was inappropriate and unenforceable. As such, the employee contended that the entire employment contract was void and unenforceable and that, therefore, her damages should be determined by the court on a reasonable notice basis, as she had been wrongfully dismissed from her employment.

The Principles of Contract Interpretation in the Employment Law Context

Generally speaking, because employment contracts are legal, they are to be interpreted by the laws applicable to all contracts. This means that the terms of the contract must be clear, unambiguous and in accord with all laws of the land (i.e., a contract that purports to agree to something illegal is unenforceable).

Employment contracts are of a special nature because they involve an inherently inequitable relationship in which the employer always enjoys more power in the relationship than the employee. As such, courts will carefully scrutinize employment contracts, which are always drafted by the employer, to ensure that they are drafted in clear and unambiguous language. Otherwise, the employee is further disadvantaged in an already unbalanced relationship. As such, if the court finds any part of an employment contract to be ambiguous, unclear or in violation of the Employment Standards Act, then the entire contract will be rendered void and unenforceable. Furthermore, any ambiguity will be construed in favour of the employee, because the employer is the party that drafted the contract and therefore should have drafted their contract more carefully had they intended to ensure clarity of all terms of the contract.

In reviewing employment contracts, courts are bound to employ a “common-sense approach” and to “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.”

The ESA includes a regulation (Regulation 288/01) that governs termination and severance of employment. Section 2 of the Regulation governs termination of employment without payment or notice, and section 2(1)3 of the Regulation dictates that such circumstances may arise when an employee is “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”

The Termination Clause in Question

The termination clause of the employment contract in this case dictated as follows:

“If you are terminated for Cause or you have been guilty of wilful misconduct, disobedience, breach of Employment Agreement or wilful neglect of duty that is not trivial and has not been condoned by ARISTA, then ARISTA will be under no further obligation to provide you with pay in lieu of reasonable notice or severance pay whether under statute or common law. For the purposes of this Agreement, “Cause” shall include your involvement in any act or omission which would in law permit ARISTA to, without notice or payment in lieu of notice, terminate your employment.”

Interpretation of the Termination Clause and Legal Principles

In this case, the court determined that the bolded portions of the termination clause excerpted above constituted provisions that violated Regulation 288/01 in that they authorized termination without notice in circumstances beyond those delineated by section 2(1)(3) thereof. In particular, the court was satisfied that the phrase “Cause shall include,” as used in this contract, “purports to include more than just Regulation 288/01 provisions. In my reading of the clauses and the case law, I found that it breaches the ESA and requires all termination provisions in the employment to be struck out.”

Moreover, “breach of Employment Agreement” was “ambiguous and should be construed against the employer who drafted the contract.” This is because the phrase did not delineate what kind of breach of the employment agreement would engender termination; as written, any breach at all would support the employer’s decision to terminate the employee’s employment for even a minor infraction. As noted by the court, this cannot be permissible in an employment contract because to allow such a provision would enable employers to dismiss employees for any reason at all, without compensation:

“Moreover, even if it is only a wilful breach of the employment agreement that would lead to a termination without notice, there are terms of the employment agreement which, even if wilfully breached, would not amount to a grounds for termination without notice either under Regulation 288/01 or at common law.  For example, the employment agreement provides that the plaintiff’s regular working hours will be Monday to Friday 8 AM to 5 PM.  Thus, if the plaintiff on one occasion wilfully came in at 8:30 without prior agreement, that would amount to cause to terminate without notice.  Similarly, another term of the employment agreement is that the plaintiff “observe all policies and guidelines” of the defendant.  A deliberate breach of one policy or guideline, no matter how minor, would purportedly amount to cause to terminate without notice.”

As a result, the court was satisfied that the termination clause of the employment contract defined “ “‘cause’ more broadly than the ESA does. As a result, all of the termination provisions in the plaintiff’s employment contract fail.”

As the employment contract was invalid, the court was tasked to determine the damages the employee was entitled to for her wrongful dismissal. The court assessed the employee’s claim of reasonable notice damages for wrongful termination at 8 months’ salary (approximately $55,000), which was far greater than the 4 weeks’ pay to which she had been entitled under the employment contract.

Contact the Law Office of Peter McSherry Today to Discuss Your Wrongful Dismissal Claim

If you have been wrongfully terminated from your employment, whether by constructive or outright dismissal, then you are in need of knowledgeable, capable legal assistance to help you navigate your next steps. Fortunately, the Law Office of Peter McSherry is here to help. From our offices in downtown Guelph, Ontario, the Law Office of Peter McSherry is pleased to provide people throughout Southern Ontario with the assistance they require when dealing with the loss of their employment.

Contact us online or by telephone at (519) 821-5465 to schedule a confidential consultation. One of our friendly, helpful staff will be pleased to listen to your concerns and help you to plan a way forward.