Written by: Stefania Rotundu
Recent developments in Ontario caselaw has placed a renewed emphasis on the specific wording in termination clauses. Employers should ensure their termination clauses remain valid in light of these developments or risk exposing themselves to hefty compensation payouts to employees upon termination.
In Ontario, most employment contracts are governed by the Employment Standards Act, 2000, SO 2000, c 41 (the “ESA”). The ESA establishes certain minimum statutory standards that employers and employees cannot contract out of, particularly due to the inherent power imbalance in bargaining.
A common issue in termination clauses involves the use of “for cause” language. While an employer may validly terminate an employee for just cause, the employee’s conduct may not always meet the standard for cause. Notably, the ESA and its regulations do not define “for cause” dismissal. Instead, the ESA outlines specific circumstances where an employee is not entitled to notice of termination or termination pay. The closest equivalent to “for cause” in the ESA and its regulations involves situations where an employee is guilty of wilful misconduct, disobedience or wilful neglect of duty that is neither trivial nor condoned by the employer.1 This standard is much higher than the common law notion of “for cause.”
In Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029, the Ontario Superior Court of Justice affirmed that if an employer defines “just cause” without restricting it to the standards set by the ESA, the entire termination provision may be invalid. In this case, Ms. Dufault, who was terminated under the terms of her employment contract, challenged the validity and enforceability of the termination clause, seeking damages in the amount of 101 weeks’ base salary and benefits.2 The employment contract allowed the employer to terminate the employee “at any time and without notice or pay in lieu of notice for cause… [with] no further payments of any nature.”3 While the clause defined “cause” to two specific situations, it did not limit it further.4 The Court found the provision invalid because it was too broad and allowed the employer to withhold termination pay and severance pay, which are protected by the ESA.5
Similarly, in Lamontagne v JL Richards & Associates Limited, 2021 ONSC 2133, the Court indicated that even using the term “for cause” could void the provision, as it incorporates the common law standard.6 These decisions have built upon the Court of Appeal’s decision in Waksdale v Swegon North America, 2020 ONCA 391 where it was confirmed that ‘without cause’ and ‘with cause’ termination clauses in employment contracts must be read together.7 This means that even if a part of your termination clause violates the ESA, then the entire termination clause may be invalid.
Understanding the nuances of termination clauses can be challenging. At MUNERA, our dedicated employment team can assist you with reviewing and drafting your employment contracts to ensure that your provisions comply with the minimum standards set out in the ESA. Contact our firm for a consultation to learn more.
1 O Reg 288/01, s 3.
2 Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029 at para 7.
3 Ibid at para 9.
4 Ibid.
5 Ibid at paras 31 to 34.
6 Lamontagne v JL Richards & Associates Limited, 2021 ONSC 2133 at para 37.
7 Waksdale v Swegon North America, 2020 ONCA 391 at para 10.
