Ontario’s top court has upheld an order requiring the Corporation of the Township of Ignace to pay nearly $160,000 in damages to a former employee after finding the employment contract’s termination clauses failed to comply with the Employment Standards Act, 2000 (ESA).
The three-judge panel, composed of Justices Nordheimer, Copeland and Madsen, dismissed the employer’s appeal and confirmed that non-compliance with the ESA in any termination clause renders all of the contract’s termination provisions unenforceable.
Validity of termination clauses
The dispute stemmed from a fixed-term employment agreement between K.D. and the Township. Following her termination without cause, K.D. sought damages for wrongful dismissal. The key legal issue was the validity of the termination clauses, specifically whether they aligned with the minimum standards required under the ESA. The motion judge found both “for cause” and “without cause” termination clauses unenforceable.
On appeal, the Township maintained that the clauses were lawful and argued, in the alternative, that if the “for cause” clause was invalid, it should be severed, leaving the “without cause” clause intact.
According to the decision, the ESA sets clear minimum standards for termination, including entitlement to notice or pay in lieu of notice except in very limited circumstances of “wilful misconduct.” The court noted that an employer cannot contract out of these standards. The motion judge concluded the clauses in question were unenforceable, and the appeal court agreed, focusing its analysis on the “for cause” clause.
‘For cause’ clause
The court found that the “for cause” clause broadened the concept of misconduct well beyond the narrow category permitted by the ESA. Section 2(1)3 of Ontario Regulation 288/01 under the ESA only allows termination without notice or pay in lieu of notice if an employee has engaged in “wilful misconduct, disobedience or wilful neglect of duty” that is not trivial and has not been condoned by the employer.
Case law from the Court of Appeal, including Waksdale v. Swegon North America Inc. and Rahman v. Cannon Design Architecture Inc., has established that this standard sets a high threshold. As stated by the court, the exception applies only to conduct done “deliberately, knowing they are doing something wrong” or “being bad on purpose.”
By contrast, the clause in the Township’s contract stated that “cause” would include, among other things, the “failure of the Employee to perform the services as hereinbefore specified” and “acts of wilful negligence or disobedience … resulting in injury or damages to the Township.” The contract provided: “For the purposes of this agreement, ‘cause’ shall include but is not limited to the following.” The court emphasized the significance of this open-ended language. It meant the employer could deem other forms of conduct as “cause,” and thus deny the employee ESA notice or pay in lieu of notice, even if that conduct did not rise to the strict level of “wilful misconduct” required by the ESA.
Conflict with ESA’s minimum standards
In short, the “for cause” clause was found to conflict with the ESA’s minimum standards. It allowed for termination without pay or notice in broader circumstances than those allowed by the statute. The Township argued that the language was in fact narrower than the ESA standard, but the court rejected that interpretation, finding it inconsistent with the established meaning of “wilful misconduct.” Instead, the court saw the clause as attempting to excuse the employer from providing notice or pay for conduct less severe than that contemplated by the ESA.
Having determined that the “for cause” clause was invalid, the court applied the principle set out in the decision Waksdale. In Waksdale, the Court of Appeal held that termination provisions must be read as a whole. If one part of the termination clause fails to meet the ESA minimum standards, all of the termination provisions are invalid. It is not possible to simply sever the offending clause and enforce the remainder. This approach encourages employers to draft employment contracts that fully comply with the ESA from the outset, rather than relying on partial compliance and later severance of offending provisions.
Waksdale reconsideration denied
The Township asked the panel to reconsider Waksdale or to convene a five-judge panel to revisit that decision. Its request for a larger panel to reconsider Waksdale was denied. As a three-judge panel, the court was bound by the earlier decision. The court’s reasons reaffirmed Waksdale’s precedent and declined to give employers a way around the ESA by severing problematic clauses after the fact.
The appeal judges decided not to consider whether the “without cause” clause was also invalid. Because the “for cause” clause failed and rendered all termination provisions unenforceable, K.D. was entitled to damages as if there were no valid termination provisions in the contract. The motion judge had based the damages award of $157,071.57 on the fixed-term nature of the employment contract, effectively providing K.D. with what she would have earned had the agreement run its full course. The appeal court let that damages award stand.
The Township argued that the motion judge’s interpretation could affect other employment contracts, but the Court of Appeal noted it would not rule on that point in this case. Instead, the judges stated those issues should be left for another appeal where the result would hinge on that determination.
In upholding the damages award and confirming that employers cannot rely on invalid termination clauses, the court maintained consistency in Ontario employment law. The key point remains that an employment contract must fully align with the ESA at the time it is signed. It cannot be partially compliant, nor can employers rely on severance of problematic clauses to bring the agreement within the law after the fact.
For more information, see Dufault v. Ignace (Township), 2024 ONCA 915.
