In a shift from the prevailing trend of employee-friendly case law regarding the interpretation of employment and compensation agreements, Canadian courts have recently issued a series of rulings in favour of employers.
This bulletin highlights five recent decisions that underscore a potential turning of the tide in employment case law.
Bertsch v. Datastealth Inc.
In Bertsch v. Datastealth Inc., the Ontario Court of Appeal confirmed that a termination provision limiting entitlements to the statutory minimums under employment standards legislation will be enforceable if, when reasonably interpreted, it is legally compliant.
On the initial motion, the judge found the termination provision to be clear, unambiguous and enforceable, excluding any right to common law wrongful dismissal damages. In reaching this decision, the judge noted that no reasonable interpretation would find the termination provision to be offside of employment standards legislation.
On appeal, the appellant argued that, while a person trained in the law might find the clause unambiguous, an ordinary person might not. Accordingly, it is unenforceable and should not be upheld.
The Court of Appeal disagreed, noting that “this is not a case where the agreement uses legal terms of language that might be confusing to a person not versed in the law.” The Court of Appeal also confirmed that “the issue is not whether an ordinary person might arrive at an incorrect interpretation of the termination provisions of the employment agreement, but how the agreement can be reasonably interpreted.”
The Court of Appeal found that, when reasonably interpreted, the termination provision in question was unambiguous and did not depart from the minimum standards guaranteed by employment standards legislation. Accordingly, the termination provision was enforceable, precluding any entitlement to wrongful dismissal damages.
Li v. Wayfair Canada Inc.
In Li v. Wayfair Canada Inc., the Ontario Superior Court of Justice upheld a termination provision permitting an employer to terminate an employee’s employment “at any time.”
The court found that the termination clause sought to limit the employee’s entitlements to the minimum requirements under the employment standards legislation, not contract out of them. While the termination provision used the phrase “at any time,” the provision also expressly referenced the employment standards legislation and contemplated that the employee would receive all entitlements required by such legislation.
This was distinguished from the provision in Dufault v. The Corporation of the Township of Ignace (Dufault), where the definition of “cause” did not refer to the employment standards legislation and the “without cause” provision failed to provide for all minimum entitlements. Such defects were not present in this case.
In reading the employment agreement as a whole, the court found that the terms complied with employment standards legislation and the termination clause was enforceable.
Jones v. Strides Toronto
In Jones v. Strides Toronto, the Ontario Superior Court of Justice once again confirmed that reference to termination of employment “at any time” does not automatically render a termination provision unenforceable.
The defendant argued that the words “at any time” on their own were not found to be problematic in Dufault. Rather, it was such language coupled with the employer’s ability to terminate employment in its “sole discretion” that rendered such provision invalid, as the employment standards legislation requires discretion in some cases.
The judge agreed with this position, confirming that the words “at any time” divorced from “sole discretion” do not on their own conflict with employment standards legislation or make a termination clause unenforceable.
Wigdor v. Facebook Canada Ltd.
In Wigdor v. Facebook Canada Ltd., the Ontario Superior Court of Justice upheld restricted stock unit (RSU) agreements that provided for the forfeiture of an employee’s unvested RSUs during the statutory notice period.
The judge noted that, under Ontario employment standards legislation, an employer may terminate an employee’s employment so long as it provides statutory pay in lieu of notice (based on regular wages) and continues to make benefit plan contributions for the period required by the legislation.
The judge confirmed that RSUs are neither wages nor benefits under the meaning of the legislation. Accordingly, a provision requiring forfeiture of RSUs during the statutory notice period does not breach the legislation and may be enforceable.
The judge also found that the employee’s rights with respect to RSUs were governed by separate agreements from the employment agreement and were independent of any relief he might have been entitled to receive under his employment agreement, the employment standards legislation or the common law.
Aspen Technology, Inc. v. Wiederhold
In Aspen Technology, Inc. v. Wiederhold, the British Columbia Court of Appeal enforced an arbitration clause in an employee incentive plan. Under such incentive plan, any such arbitration would be heard in Boston and governed by Delaware law.
The lower court judge found the arbitration clause void on the basis that (1) the arbitration clause changed the contractual terms of employment without any fresh consideration, (2) the arbitration clause, together with the choice of law and forum, did not comply with employment standards legislation and was contrary to public policy, and (3) the cost to arbitrate would be disproportionate to the cost of a claim.
However, the Court of Appeal disagreed and upheld the arbitration clause on the following basis:
The arbitration clause did not constitute a change to the employment contract requiring fresh consideration. The arbitration clause was in the incentive plan at the outset of the employee’s employment, and the incentive plan was expressly contemplated in his offer of employment.
There was insufficient evidence to support the finding that the application of Delaware law would be contrary to public policy and deprive the employee of the mandatory benefits under B.C. employment standards legislation.
The lower court judge did not make a finding of unconscionability. The Court of Appeal distinguished the arbitration clause from Uber Technologies Inc. v. Heller and concluded that there was no evidence that the clause was unconscionable in this case.
These decisions suggest a shift in Canadian employment law, with greater willingness by courts to uphold well-drafted employment and compensation agreements. However, given the rapidly evolving laws, it remains prudent to regularly review and refresh template employment and incentive compensation agreements with help from legal counsel.
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