An Ontario court has ruled that the termination provisions in an executive’s employment agreement are unenforceable because they did not meet the minimum requirements laid out by the province’s employment standards legislation.
The ruling involved VR, the former director of sustainability for Wesdome, a Toronto-based mining, exploration, and development company. He began his employment with the company on April 2, 2018, and was terminated without cause and without notice on Nov. 1, 2019.
At the time of termination, VR was 49 years old and had a base salary of $164,800. He was also eligible for a discretionary bonus; stock option grants; matching RRSP to 5% of wages; medical benefits; and four weeks’ vacation.
Termination clause in contract
The termination clause is VR’s contract read as follows:
This Agreement and your employment with the Company may be terminated at any time for just cause, without prior notice or any payment in lieu of notice or payment of any kind whatsoever either by way of anticipated earnings or damages of any kind, by advising you in writing.
The Company may at any time terminate this Agreement and your employment, in accordance with the Employment Standards Act, (Ontario} (the “ESA”). The provisions of this paragraph will not apply in circumstances where you resign from employment or are terminated for cause.
(Emphasis in bold added by the court.)
The provision in question states that an employee is not entitled to any payments, including anticipated earnings or damages, if terminated “for just cause.” It also specifies that this provision doesn’t apply if the employee resigns or is terminated “for cause.”
The court’s assessment hinges on multiple legal precedents and ESA regulations. Section 2(1) of the Termination and Severance of Employment, O Reg 288/01, under the ESA, outlines which employees are not entitled to notice or termination pay. According to the regulation, employees guilty of “wilful misconduct, disobedience or wilful neglect of duty” are exceptions. However, ESA requirements differ from common law standards for just cause termination.
In previous rulings, including Minott v O’Shanter Development Co. and Andros v. Colliers Macaulay Nicolls Inc., courts have emphasized that ESA regulations cannot be automatically equated with common law standards for just cause termination.
Machtinger v HOJ Industries Ltd. further underlines that a termination clause to be enforceable must be “clear and unambiguous,” with any ambiguities to be resolved in favor of the employee. The ESA sets the minimum standards that employers must meet and does not allow for contracts that attempt to circumvent these standards.
As noted in Rahman v. Cannon Design Architecture Inc., even if an employer has cause to terminate an employee, ESA notice and severance still apply.
The court found that a termination provision violating any part of the ESA is unenforceable. Given that Wesdome’s provision did not comply with the ESA’s minimum requirements — specifically, denying any payments to an employee terminated “for cause” — the court deemed it unenforceable.
Therefore, common law notice applies in this case, irrespective of Wesdome’s original intentions. Even though Wesdome did pay the plaintiff two weeks’ severance under the ESA, the court’s ruling emphasizes that the company cannot rely on the unenforceable termination provision in the Employment Agreement.
The court awarded the following to VR:
Reasonable notice: Taking into account his age, years of service, and his role in the company, among other factors, the court determined that a reasonable notice period for termination in this case was six months. It cited the impact of the pandemic on his ability to find a new job, and refused to deduct any amount for failure to mitigate damages.
Vacation pay: Wesdome was found to have failed in paying the mandated vacation pay under the ESA. The court ruled in favor of the plaintiff, amounting to $5,631.08, stating that performance-based bonuses should be included in the definition of “wages.”
Benefits in lieu of notice: Wesdome had agreed to extend health and dental benefits for six and a half months post-termination. However, the court awarded VR additional damages calculated as 10% of his base salary for the notice period.
Post-termination stock options: The court deferred this matter for an expedited mini-trial due to unresolved issues related to VR’s knowledge of the stock option plan.
For more information, see Ramcharan v. Wesdome Gold Mines Ltd., 2023 ONSC 4643 (CanLII)