Termination Clause Void After Multiple Clauses Found Invalid

Written on behalf of Peter McSherry
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Situations can arise where provisions within employment agreements are found to be invalid. On occasion, due to the invalidation of one clause, subsequent clauses are also found to be unenforceable. 

This week’s blog considers a recent decision from the Ontario Superior Court of Justice in the case of Henderson v. Slavkin et al. where the Court was tasked with analyzing the validity of three clauses, including a termination clause, within an employment agreement. 

Employment agreement non-existent for 25 years

In this case, the employers are two doctors who operated multiple oral surgery dental offices in Ontario. The plaintiff receptionist became employed at one of the offices in 1990 and remained an employee for 30 years before she was terminated in the Spring of 2020. 

The employers began developing their plan to retire and started preparing for the eventual sale, or closing, of their practice in 2015. Up until that point, there had been no formal employment agreement in place between the plaintiff and the defendants. However, the employers determined that they wanted to ensure that their staff had clear expectations of what to expect upon their retirement. 

Notice sent to staff regarding required contract

In a letter sent to each employee, the employers proposed an employment contract and confirmed that each staff member who signed an employment contract would be paid a one-time additional fee of $500. The letter further stated that if an employee chose not to sign the employment agreement, their employment would be terminated.

The plaintiff argued that three clauses contained within the proposed agreement were illegal and challenged them before the court. 

Three clauses challenged by employee

The first clause in question stated that the employee could be terminated without cause at any time and would only be entitled to minimum notice or pay in lieu of notice as prescribed in the Employment Standards Act

The second clause prohibited employees from having direct or indirect personal interest in areas considered to be in conflict with the employer, including: 

“(a) Private or financial interest in an organization with which does business [sic] or which competes with our business interests;

(b) A private or financial interest, direct or indirect, in any concern or activity of ours of which you are aware or ought reasonably to be aware;

(c) Financial interests include the financial interest of your parent, spouse, partner, child or relative, a private corporation of which the [sic] you are a shareholder, director or senior officer, and a partner or other employer;

(d) Engage in unacceptable conduct, including but not limited to soliciting patients for dental work, which could jeopardize the patient’s relationship with us.”

The final clause dealt with confidential information at the practice, prohibiting the use, disclosure, copying, reproduction, or removal of any confidential information whether accidental or on purpose.

Employment contract signed 25 years after employment started

The employee receptionist signed the agreement and continued to work for the employers. However, by early 2019, the employers determined that they would not be able to feasibly sell their practices. The employers advised all employees by way of letter that their employment would be terminated at the end of April 2020. 

The employee, who had worked for the employers for over 30 years, was not satisfied that the contract she had signed the year before was legal, specifically challenging the termination clause. 

Two Clauses Found Invalid

The divisional court referenced the 2017 decision of Wood v. Fred Deeley Imports Ltd., from the Ontario Court of Appeal, which addressed termination clauses that limit notice to the minimum contained in the Employment Standards Act (the “Act”). In that decision the Court wrote: 

“A termination clause will rebut the presumption of reasonable notice only if its wording is clear, since employees are entitled to know at the beginning of an employment relationship what their employment will be at the end of their employment.”

The Court addressed each of the three clauses that the employee challenged. The Court found that the termination clause was not contrary to the Act

However, the clause which prohibited employees from having personal interest in areas of conflict of the employer was deemed invalid and set aside due to being overly broad and ambiguous. The Court also found that the clause dealing with confidential information was invalid for the same reasons. 

Entire agreement ultimately set aside 

The Court held that because two of the challenged clauses were found to be invalid, that the entire contract must be set aside. The employee was subsequently awarded 18 months’ payment in lieu of notice, which was more in line with common law principles as opposed to the statutory minimum contained in the Act

The duration of notice may have been longer, but a number of items served to mitigate the notice period, including the employee’s move away from the local area and the COVID-19 pandemic, which contributed to uniqueness of this scenario in particular.

Contact Toronto Employment Lawyer Peter A. McSherry for Trusted Advice on Employment Contracts

Peter A. McSherry Employment Lawyer regularly assists employees who are entering into employment contracts their rights and responsibilities are under the contract. We understand that employees may sign an employment contract without having a comprehensive understanding of the entire contract, which can later cause problems between the parties. Our skilled and knowledgeable lawyers regularly assists employees on a variety of employment-related issues, including wrongful dismissal, constructive dismissal, and severance package issues. Conveniently located in Guelph, our firm represents clients throughout the Greater Toronto Area. Contact us online or by phone at 519-821-5465 to schedule a confidential consultation.