In the recent Bertsch v. Datastealth Inc., 2024 ONSC 5593 decision, the Ontario Superior Court of Justice upheld the enforceability of a "with or without cause" termination provision that limited the employee's entitlement on termination of employment to the minimum standards set out in the Ontario Employment Standards Act, 2000 (the "ESA").
The decision is a welcome development for employers as it represents a departure from the Ontario court's reluctance to enforce termination without cause provisions in recent years. For reference, this topic which has been discussed extensively on our blog (see for example, our previous articles on the Dufault v. The Township of Ignace, Rahman v. Cannon Design Architecture Inc. decisions).
Facts
The Plaintiff employee was employed with the Defendant pursuant to an employment agreement dated July 14, 2023 (the "Employment Agreement"). The Plaintiff was terminated on June 7, 2024, after working for the Defendant for approximately eight and a half months. The Employment Agreement contained the following termination provision which limited his rights on termination "with or without cause" to the minimum standards in the ESA and contracted out of common law notice requirements (the "Termination Provision"):
- Termination of Employment by the Company: If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the [ESA] and its Regulations…including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.
You understand and agree that compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment, or pay in lieu thereof. You further understand and agree that this provision shall apply to you throughout your employment with the Company, regardless of its duration or any changes to your position or compensation. [emphasis added]
The Plaintiff claimed that the Termination Provision was in violation of both the ESA and Ontario Regulation 288/01 (the "Regulation") because it failed to properly reference the employer obligation to provide termination entitlements in accordance with the ESA and the Regulation, unless the employee committed "wilful misconduct, disobedience or wilful neglect of duty." Pursuant to the Regulation, only "wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer" will relieve an employer from paying out ESA termination entitlements.
In light of the above, the Plaintiff argued that the Termination Provision was void and unenforceable because it failed to reference the statutory exemption from ESA termination entitlements. As such, he claimed that he was entitled to reasonable notice of termination from employment at common law, seeking twelve months' pay in lieu of notice, which amounted to approximately $300,000.
The Defendant argued that the Termination Provision did not breach the ESA or the Regulation as it was clear and unambiguous. Accordingly, the Defendant brought a Rule 21.01(1) motion to determine the interpretation of the contractual provisions and strike out or dismiss the claim as disclosing no tenable cause of action.
Decision
The Court held that the Termination Provision in the Employment Agreement did not contravene the ESA and the Regulation, thereby rejecting the Plaintiff's argument on the motion.
In rendering their decision, Justice Stevenson found there was "no reasonable alternative interpretation of the [Termination Provision] that might result in an illegal outcome – i.e., there [was] no reasonable interpretation which would be contrary to the minimum requirements of the ESA and regulations."
Though Justice Stevenson acknowledged that the power imbalance between employers and employees provided a basis for ambiguities in contractual terms to be read in favour of the employee, he found that this general principle did not apply in these circumstances, as there was no ambiguity in the Termination Provision. He further noted that while the Termination Provision was "not simple", this did not mean that it was ambiguous:
I agree that the interpretation and application of the termination clause is not a simple matter. But that is partly because the law is not very straight forward in respect of these issues. Many a lawyer has struggled to understand the distinctions being discussed and to predict the likely outcome if one of these claims is litigated. Any employee would benefit from legal advice before signing any such agreement. But the contractual terms here, while not simple, are clear and unambiguous.
Justice Stevenson then went one step further and distinguished the decision with that of Waksdale v. Swegon (which we have also previously written about). The Waksdale decision established that a "without cause" termination provision will be unenforceable even if it complies with the ESA, if the "with cause" provision does not. The Ontario Court of Appeal in Waksdale found that the "correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA." Justice Stevenson found that the Termination Provision did not violate the ESA as there was an express reference to the employer obligation in the Regulation and a proper limitation of employee entitlements on termination. As he stated "the exclusion of common law notice in this case is clear and it is enforceable. The limitation of compensation is also clear and enforceable."
In light of the above, the Court upheld the Termination Provision as enforceable and struck out the Plaintiff's claim.
Key Takeaways for Employers
This decision provides a reminder to employers that the language used in termination provisions directly relates to the enforceability of such provisions. It is important for employers to regularly review their existing employment agreement templates to ensure their termination provisions are drafted clearly and without ambiguity, and that they displace employee rights to common law notice unequivocally. At the same time, this decision should provide comfort to employers that where a termination provision is drafted clearly and in compliance with the ESA and its regulations, it may withstand scrutiny from the courts.
We will be monitoring this case to see if the Plaintiff will seek leave to appeal the decision to the Ontario Court of Appeal.
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