Oracle’s ‘just cause’ termination clause tossed for being too broad by Ontario court

Oracle's headquarters in Austin, Texas. Photo courtesy Oracle.

The termination clause in an employment contract for a sales rep at Oracle has been ruled invalid by an Ontario court for being overly broad.

Aftim Nassar began working for oracle on March 5, 2018. His title was “applications sales representative IV” — and he was the only Canadian employee in that role.

Oracle terminated his employment, without cause, on Feb. 9, 2021. Despite not alleging cause, it did cite alleged repeated poor performance and his documented failure to reach sales targets.

The text of the termination clause

The termination clause in his contract contained provisions for termination with, and without, cause as follows:

For Cause: Oracle Canada may terminate your employment at any time, for just cause, without any notice or pay in lieu of notice.

Without Cause: Oracle Canada may terminate your employment in your present position or any other position that you may occupy at Oracle Canada as a result of a promotion, reassignment or any other change at any time, without just cause, by providing you with only the minimum statutory notice or termination pay, minimum entitlement to benefit continuation and statutory severance (if applicable) in accordance with the employment standards legislation of the province in which you are employed, as well as accrued wages and vacation pay, in full satisfaction of all entitlements or claims you may have of any kind whatsoever.

Was ‘for cause’ definition too broad?

The Ontario Superior Court of Justice pointed out that you cannot contract out of the minimum standards prescribed by the ESA. And, if any portion of a termination provision is unenforceable, then “the entire termination clause fails.”

“The impugned ‘for cause’ provision of Oracle’s termination clause clearly states on its face that no benefits will be paid if Mr. Nassar is dismissed for ‘just cause,’” wrote Justice S. Vella. “The phrase ‘just cause’ is not defined anywhere in the employment contract. The contract does not qualify the concept of just cause to mirror the definition under the ESA Regulation.”

Employers have had plenty of notice to ensure termination clauses are written in a manner that complies with the ESA and its regulations, the court said.

“Our courts demand that such clauses be clear and unambiguous in how they are written,” wrote Justice Vella.  “There should be no room for guess work by the employee in understanding when terminated, be it for just cause or not, what entitlements they will receive, and it must be clear that those entitlements at least meet the minimum requirements of the ESA and its regulations.”

It struck down the clause, and awarded reasonable notice at common law — subject to mitigation.

Reasonable notice period

The court applied the usual Bardal factors in calculating the notice period. Nassar had been with Oracle for nearly three years in the role of salesperson.

He was 44 at the time of termination, and found another job about five months after being dismissed. His skills as a sales rep are “transferable,” the court said, and noted he found another position relatively quickly at a higher rate of pay than his job at Oracle.

At Oracle, he reported to a supervisor, so his job was not managerial nor did it hold a supervisory capacity, the court said.

The court settled on five months as a reasonable notice period for Nassar.

The burden is on Oracle to prove that Nassar failed to mitigate his damages, the court said. It ruled the company did not establish that there was a failure in his duty to mitigate. During his job search, he applied for about 2.4 jobs each week.

Damages

At Oracle, Nassar earned a base salary of $10,000 per month. Five months’ notice amounted to $50,000.

Oracle asked the court to reduce the damages by deducting the higher base salary Nassar was earning in his new job, something known as “backfilling.”

“In short, the employer seeks to backfill the damages by applying the surplus earnings from the terminated employee’s new employment to reduce its obligation to pay damages in lieu of notice,” the court said.

It agreed, but for a very limited period: Four days between July 6 to July 9, 2021. It calculated that at $328.77 per day, for a total of $1,370.

Therefore, the total amount awarded was $48,630.

Commissions

The court used a three-year average to calculate the commissions owing.

Nassar objected to using the first year, as he earned no commissions in the “ramp year.” Oracle wanted to eliminate the third year, his best year, because it contained commissions transferred to him that were secured by another rep.

The court rejected both arguments in sticking with three years for the average. It calculated that as $25,440.29 per year, or $2,210.02 per month. Therefore, he was entitled to $10,600 less four days. (He received commission from his new employer over that same July 6-9 period.)

Benefits and pensions

Oracle offered to extend benefits to Nassar for 10 weeks following his termination, something he was advised of verbally and in writing. But it was conditional upon him signing a release, which he declined to do.

Since there were no benefits received during that period, the court said he was entitled to damages equivalent to 10 per cent of his base salary, or $1,000 a month. Total was $5,000, minus the four-day mitigation period.

On the pension front, Nassar was entitled to matching pension contributions up to the sum of $600 per month. But the contributions were dependent on him making his own contribution. The court declined to award damages for lost pension contributions because Nassar did not indicate he was now prepared to make those contributions retroactively.

For more information see Nassar v. Oracle Global Services, 2022 ONSC 5401 (CanLII)

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