Three Recent Cases Urge Careful Drafting of Just Cause Termination Provisions

Introduction

Since the Ontario Court of Appeal’s decision in Waksdale v Swegon North America Inc, 2020 ONCA 391, Ontario courts have continued to affirm the principle that employers must ensure that all parts of an employment agreement comply with the Employment Standards Act, 2000, SO 2000 c 41 (“ESA”). The motivating principle is to ensure that employers have a clear incentive to draft employment agreements that fully comply with the ESA, lest some employees receive less than their ESA minimum entitlements. Notably, several recent decisions have voided termination agreements on the grounds that their just cause termination provisions failed to comply with the ESA’s minimum standards.

Just Cause and the ESA

“Just cause” is a widely-referenced principle that exists at common law. An employer may have just cause to terminate an employee if their conduct (either through a pattern of behaviour or a single, extraordinary incident) breaches the fundamental terms of the employment relationship. At common law, just cause can occur through actions such as insubordination, severe incompetence, or breach of trust. If just cause is found to exist, the employer may terminate the employee immediately, without providing notice or pay in lieu.

However, the minimum standards under the ESA do not reference the common law concept of just cause. Instead, O Reg 288/01: Termination and Severance of Employment (“O Reg 288/01”) permits termination without notice only in the case of wilful misconduct, disobedience or wilful neglect of duty, which typically encompasses only deliberate and serious wrongdoing.

As several recent cases demonstrate, Ontario courts have held certain that “just cause” termination provisions breach the ESA by denying employees their minimum termination entitlements in circumstances not contemplated by the ESA. In each case, the employee had been terminated on a without cause basis but argued that because the just cause termination language was unlawful, the entire termination provision should be declared void.

Campbell-Givons v Humber River Hospital, 2021 ONSC 6317

In Campbell-Givons v Humber River Hospital, 2021 ONSC 6317, the plaintiff argued that the just cause provision in their employment agreement violated the ESA for being more expansive than the wilful misconduct standard under O Reg 288/01. The employment agreement had expressly outlined several scenarios in which just cause might occur, including four scenarios that would not meet the wilful misconduct standard (such as incompetence and conduct that brings disrepute to the company). The employment agreement contained “saving” language indicating that the employee would receive all entitlements owing to her in accordance with the ESA.

Justice Black held that the express “just cause” scenarios violated the ESA by contemplating situations where an employee may not receive their ESA minimum termination entitlements and that the “saving” language in the agreement did not render the offending provisions acceptable. Accordingly, even though the plaintiff had not been terminated for just cause, the defendant’s just cause termination provision was broader than the wilful misconduct standard and was declared void. As a result, the plaintiff was awarded reasonable notice at common law.

Livshin v the Clinic Network Canada Inc, 2021 ONSC 6796

In Livshin v The Clinic Network Canada Inc, 2021 ONSC 6796, the plaintiff similarly argued that the employment agreement’s just cause termination provision violated the ESA and was thus void. The impugned employment provision read:

c) Termination by the Company for Just Cause – The Company has the right, at any time and without notice, to terminate your employment under this Agreement for just cause.

Justice Black again found that this contract language contravened the ESA by potentially denying an employee their ESA minimum standards entitlements. Justice Black noted that employers are always able to draft employment agreements that expressly comply with the ESA’s minimum entitlements, and that the failure to do so must result in the application of common law notice as a form of deterrence. Justice Black rejected the employer’s argument that the offending clause could be severed while leaving the remainder of the termination provision intact pursuant to the severability clause in the contract. Citing North v Metaswitch, 2017 ONCA 790, Justice Black noted that if the termination clause is void for contracting out of an employment standard, there is nothing to which a severability clause in the contract can be applied.

Lamontagne v JL Richards & Associates Limited, 2021 ONSC 8049

In Lamontagne v JL Richards & Associates Limited, 2021 ONSC 8049, the Divisional Court upheld a trial judge’s decision to void an entire termination clause that read, in relevant part:

Employment may be terminated for cause at any time, without notice.

The Divisional Court held that the trial judge was correct to interpret this termination provision as potentially denying ESA minimum termination entitlements to employees on the basis of the just cause standard. As a result, the entire termination provision was declared void and the plaintiff was awarded common law notice.

Significance

These recent cases serve as a caution to employers to ensure that every aspect of their employment agreements comply with the ESA. Specifically, any reference to just cause must be clear that employees who are entitled to notice under the ESA will receive their minimum entitlements. Otherwise, the entire termination provision will likely be declared void and the common law will apply.

For advice specific to your situation, consider contacting your regular lawyer at Rae Christen Jeffries LLP.