Ontario Termination Clauses: Maybe A Deal Still Is A Deal
Sometimes, just when we think that the law on a specific point is settled, a new case comes along which puts the previous “latest and greatest” decision into question.
In a prior update, we flagged the implications for employers of the 2020 decision of the Ontario Court of Appeal in Waksdale v. Swegon North America Inc.
The Waksdale case, which soon appeared with alarming frequency in demand letters from employee-side lawyers, arguably put the enforceability of many Ontario employment contracts into question. The reason is that the Court said that a “cause” provision in the form seen in many employment agreements was illegal because it sought to impose a standard which was less onerous that that required by the Ontario Employment Standards Act, 2000 (ESA). If widely followed, the Waksdale reasoning eliminates one of the main reasons why most employers prepare employment agreements, which is to delineate and limit the severance obligations upon termination without cause.
A recent Ontario Superior Court of Justice offers some hope that termination provisions in employment agreements may in fact be enforceable notwithstanding the decision in Waksdale. In Rahman v. Cannon Architecture Inc. 2021 ONSC 5961, the Court agreed to enforce the terms of the employment agreement despite the fact that the document had “cause” wording of the type which Waksdale said was problematic.
The plaintiff, Ms. Rahman, commenced working for Cannon Architecture in 2016. Her role was “Principal”, with an annual salary of $185,000, together with a substantial bonus opportunity. As part of the negotiation of her employment agreement, she retained a lawyer to represent her.
The contract which was challenged when Rahman was terminated provided that she would be provided with no severance in the event she were to “engage in conduct that constitutes just cause for summary dismissal.”
In his decision in Rahman, Mr. Justice Dunphy held that the termination without cause provision in the contract was enforce. The rationale for this decision included the fact that legal advice had clearly been obtained as part of negotiating the agreement, so there was no proper basis to claim that Rahman was uniformed or at a disadvantage. Instead, the mutual intent of the parties seemed clear: in the event of termination, the employer’s obligations would be limited to compliance with the ESA. As a related point, the contract had clear wording added “for greater certainty” which confirmed that ESA compliance was intended to be both a floor and a cap on what was applicable upon termination.
This outcome is almost certainly going to be challenged, either by way or an appeal, or through argument that the case is distinguishable on its facts. As a further notable point, the Court of Appeal is a higher level of court which is typically shown deference, particularly in cases involving conflicting outcomes.’
Takeaways for Employers
This case may not eliminate all arguments about termination clauses, and may instead mean that disputes on point will continue to be subject to some confusion. It is helpful, however, to have a current case which provides some support for a more commercial approach to employment claims. The result may moderate the rush to essentially ignore negotiated agreements, especially if the case involves an executive who has obtained legal advice when negotiating the agreement. Caution will still remain the order of the day – when the law is arguably uncertain on a particular point, the specific outcomes become that much more difficult to predict.