Canada: Waksdale Prevails: Ontario Court Of Appeal Overturns Enforceability Of Illegal Termination Provisions In Rahman

The Waksdale Decision

On June 17, 2020, the Ontario Court of Appeal in Waksdale ruled that a contract's termination provisions must be read as a whole, to the effect that if any aspect of the termination clause is found to contravene the Employment Standards Act, 2000 ("ESA"), the entire clause will be rendered null and void for all purposes, despite the existence of a severability clause.

The Case of Rahman

Facts

Farah Rahman was employed by Cannon Design Architecture Inc. ("CDAI") as a Senior Architect, Principal and Office Practice Leader for over four years. She was given four weeks of base salary when her employment was terminated, without notice or cause.

Prior to the commencement of her employment, Rahman sought independent legal advice and negotiated the terms of her employment agreement, including the termination provisions. With the help of legal counsel, Rahman negotiated "material improvements" to the terms of her severance package under her contract.

Rahman signed two employment contracts with distinct termination provisions. The first was an "Offer Letter" asking Ms. Rahman to join CannonDesign, a subsidiary company wholly owned by CDAI, as a "Principal". The second was an "Officer Agreement" between The Cannon Corporation (a corporate entity separate from CannonDesign and CDAI) and Ms. Rahman, to become Cannon Corporation's Senior Vice President and Principal Officer.

The Offer Letter referred to the Officer Agreement, stating that the latter also formed the basis of her employment. It provided that in the event of a conflict between it and the Officer Agreement, the Offer Letter would govern.

After her dismissal, Rahman brought an action for wrongful dismissal. She argued that, in accordance with the decision in Waksdale, the termination provisions of the employment agreement were not enforceable because the "just cause" provision would allow for termination without notice in situations in which the ESA still required notice to terminate an employment contract.

The termination provision:

"CannonDesign maintains the right to terminate your employment at any time and without notice or payment in lieu thereof if you engage in conduct that constitutes just cause for summary dismissal."

Rahman argued that according to Ontario Regulation 288/01, an employee can be terminated without notice only where they have been "guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer"— a standard Rahman argued was higher than "just cause" at common law.

In addition, Rahman argued that the provisions of the initial "Officer's Agreement" that had been sent to her before the employment agreement violated the ESA. The Officer's Agreement and the employment agreement contained different termination provisions, and Rahman had not negotiated the Officer's Agreement's provisions.

Ontario Superior Court of Justice

The motion judge found that the contractual provision in the employment agreement which denied entitlements upon termination for just cause did not amount to an attempt to contract out of the Employment Standards Act, 2000 because the employer and employee had equal bargaining power in negotiating the employment agreement. The basis for the motion judge's decision was that he found Rahman to be "reasonably sophisticated" as she received independent legal advice prior to entering into the contract. The Court found the termination provision to be valid and enforceable.

The Court of Appeal

On Appeal, the question before the Court was whether the motion judge erred in concluding that the termination provisions of the employment contracts govern the termination of her employment.

Justice Gilese reasoned:

[24] In my view, the motion judge erred in law when he allowed considerations of Ms. Rahman's sophistication and access to independent legal advice, coupled with the parties' subjective intention to not contravene the ESA,to override the plain language in the termination provisions in the Employment Contracts. By allowing subjective considerations to distort and override the wording of those provisions, the motion judge committed an extricable error of law reviewable on a correctness standard: Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at para. 65. It is the wording of a termination provision which determines whether it contravenes the ESA – even compliance with ESA obligations on termination does not have the effect of saving a termination provision that violates the ESA: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 481, at paras. 43-44.

[28] The wilful misconduct standard requires evidence that the employee was "being bad on purpose": Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310, at para. 79, citing Plester v. Polyone Canada Inc., 2011 ONSC 6068, 2012 C.L.L.C. 210-022, aff'd 2013 ONCA 47, 2013 C.L.L.C. 210-015. For example, in Oosterbosch v. FAG Aerospace Inc., 2011 ONSC 1538, 2011 C.L.L.C. 210-019, the court awarded damages for ESA notice and severance after holding that the employer had just cause to terminate the employee for persistent carelessness that did not meet the wilful misconduct standard.

[29] There is nothing in the Operative Just Cause Provision that limits its scope to just cause terminations for wilful misconduct. In its plain wording, the Operative Just Cause Provision gives CannonDesign the right to terminate Ms. Rahman's employment without notice or payment, for conduct that constitutes just cause alone. That means the Operative Just Clause Provision contravenes the ESA and s. 5 renders it void. Section 5 provides that no employer shall contract out of an employment standard and any such contracting out is void.

The Court of Appeal found that the plain wording of the termination provision ran afoul of the ESA and was therefore void and unenforceable. The Court of Appeal ruled that the motion judge erred at law in considering the former employee's "sophistication and access to independent legal advice" and used those factors, among others, to "override the plain language" in the termination provisions.

Key Takeaways

When the Rahman decision was released last year, it was found to be a major win in favour of employers. By reversing the decision, the Court of Appeal has upheld the Waksdale decision. It reinforces that termination provisions should be read together, in their plain wording, when assessing their validity and enforceability.

The ever-changing legal landscape of employment law in Ontario should encourage employers to have their employment contracts regularly reviewed by a lawyer to ensure they are compliant with statutory requirements for enforceability purposes and to avoid expensive litigation.

To incentivize employees to sign the new agreements with updated termination provisions, employers may provide consideration to employees in the form of a signing bonus, salary increase, or other incentives.

If you have any questions regarding termination provisions and updating employment contracts, please contact Timothy Gindi at (416) 446-3340 or Timothy.Gindi@devrylaw.ca.

"This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs."

This blog was co-authored by Owais Hashmi*

Sources

[1] Rahman v Cannon Design Architecture Inc, 2022 ONCA 451

[2] Waksdale v Swegon North America Inc, 2020 ONCA 391.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.