Another one bites the dust

The Ontario Superior Court’s Decision in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 [Dufault] saw a contractual termination provision struck down.

The reasons? The Court found three major issues with the drafting of the provision (see below).

The result? The Court found the terminated employee was owed a total of 101 weeks’ reasonable notice.

The decision is notable, though not much in the Court’s reasoning was new.  

At the end of the day, Dufault is most significant as a reminder of (i) the challenges to drafting enforceable termination provisions in employment contracts; and (ii) the importance of having  employment agreements regularly reviewed and refreshed.

Background to the decision

The matter concerned an employee who was hired on a fixed-term contract running until December 31, 2024. She was terminated early, on a without-cause basis on January 26, 2023, with approximately 101 weeks remaining on the term of her contract.

At termination, the employer paid only the minimum employment standards entitlements, relying on a provision in the contract stating that the employee was limited only these entitlements.

The employee sued for wrongful dismissal, and the Court’s decision came down to determining whether the termination provision relied-upon by the employer was drafted in a way that the Court would consider enforceable.

Why the Court awarded 101 weeks' reasonable notice

The Court cited multiple reasons to support its finding that termination provision in the employee’s contract was not drafted properly, and was therefore found void and unenforceable:

1.  Just Cause Termination Language: Relying on recent Ontario court decisions in Waksdale and Rahman, the Court found that the language in the contract’s “termination for cause” provision ran afoul of the minimum requirements of the Ontario Employment Standards Act, 2000 (the “ESA”). This in itself voided the enforceability of all of the contract’s termination terms, including the contract’s “without cause termination” provision.  

2. Without Cause Termination Entitlements: The Court also found the contract’s without-cause termination provision failed to meet the minimum requirements of the ESA in failing to expressly provide for entitlements of vacation pay and paid sick days during the notice period. This finding was consistent with Ontario Courts’ view that “where the language of a termination clause is unclear or can be interpreted in more than one way, the court should adopt the interpretation most favourable to the employee.”

3. “Sole Discretion” to Terminate: The Court found there was a further breach of the ESA resulting from the contract’s termination provision stating that the employer could terminate the employee at its “sole discretion”. The Court found that such language failed to recognize that employers discretion to terminate employees is not absolute, because employers must comply with ESA provisions such as those providing protected leaves and protections against reprisal. While this specific finding represents a somewhat novel feature of the decision, it remains consistent with Courts’ approach of adopting the interpretation of ambiguous contract language that is “most favourable to the employee”.

Having found the employment contract’s termination provision to be void and unenforceable, the Court’s award of 101 weeks’ reasonable notice was a straightforward application of the decision in Howard v. Benson Group Inc., 2016 ONCA 256, where Ontario’s Court of Appeal affirmed that “In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term, and that obligation will not be subject to mitigation”.

Takeaways

For Ontario employers, the key takeaways of the decision in Dufault are:

• Review and update your employment contracts and their termination provisions regularly.

• Approach the hiring and firing of fixed-term employees with caution.

• Be sure to consider the risks of introducing concepts like “discretion” into an employment agreement.

  
  

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