Monkhouse Law Successful in Arguing Termination Clause Unenforceable

Termination clauses in employment contracts are an employer’s best defense against owing significant notice to employees upon termination. The recent Ontario Superior Court decision of Ojo v. Crystal Claire Cosmetics Inc, 2021 ONSC 1428, represents yet another crack in this ever-weakening armor. In Ojo the termination clause was found to be unenforceable, entitling the employee to reasonable common law notice of termination.

The plaintiff received an offer of employment to work for the Defendant as a warehouse manager In August of 2018.

In July 2019, less than a year later, the defendant terminated the plaintiff’s employment on a without cause basis and provided him with the statutory minimum of termination pay under the Employment Standards Act (“ESA”), which was the amount stipulated in the employment agreement.

The plaintiff brought a claim against the employer, arguing that the termination clause was unenforceable, and he was therefore entitled to reasonable common law notice of termination.

Termination clause not compliant with ESA

The termination clause in the plaintiff’s employment agreement read as follows:

“Termination

Crystal Claire maintains the right to terminate your employment at any time and without notice or payment in lieu of thereof, if you engage in conduct which constitutes just cause for summary dismissal.

In the absence of just cause, Crystal Claire may terminate your employment at any other time and for any reason upon providing you with either advance notice and/or applicable payments equivalent to the minimum applicable entitlements contained within the ESA, as amended. For greater certainty, Crystal Claire’s maximum liability to you for common law notice, termination pay, severance pay, or payment in lieu of notice shall be limited to the payment of the amounts specified in the ESA”

The plaintiff argued that this termination clause is invalid first because the “just cause for summary dismissal” component is inconsistent with the ESA as dismissal for cause is not sufficient to disentitle an employee from notice of termination. Second, the termination clause does not provide for the continuation of benefits throughout the notice period, which is also inconsistent with the ESA.

Conversely, the defendant argued that the phrase “minimum applicable entitlements contained within the ESA” meant that the termination clause was in compliance with the law.

Justice Diamond, in his reasons, agreed with the plaintiff. As the recent decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391 (find Monkhouse Law’s post on the decision here) established, courts “will not enforce termination provisions that are in whole or in part illegal” (Waksdale at paragraph 10).

The ESA requires “wilful misconduct or disobedience” in order for an employee to be excepted from their right to notice or pay in lieu thereof. The common law standard, or what the defendant has written in the agreement as “conduct which constitutes just cause for summary dismissal” is a lower standard than the legislation, and therefore, conduct could meet the common law definition of cause but not rise to the level of “wilful misconduct” required by the ESA. As a result, the termination provision runs afoul of the legislation and is unenforceable.

Though not determinative as the termination clause was already found to be unenforceable under the plaintiff’s first argument, Justice Diamond also agreed that the provision was inconsistent with the ESA as it failed to provide for the continuation of benefits throughout the notice period.

The plaintiff is entitled to 3 months’ notice

As the termination clause was found to be unenforceable, the plaintiff was entitled to common law reasonable notice of termination. Justice Diamond applied the Bardal factors to determine the appropriate amount of notice owing to the plaintiff.

The judge took into account the plaintiff’s age at termination (52 years old), the managerial and senior nature of his position, as well as his relatively short tenure working for the defendant. Despite the plaintiff having less than one year of service, Monkhouse Law was successful in obtaining a 3-month notice period.

The plaintiff did not fail to mitigate his damages

Terminated employees are obligated to make reasonable efforts to mitigate their damages by finding comparable employment. The onus of proving that the plaintiff failed to mitigate their damages falls on the defendant.

Though the plaintiff eventually secured alternative employment, the plaintiff had turned down a job offer after being terminated but before securing his new employment. This was the basis for the defendant’s argument that the plaintiff had failed to mitigate his damages.

The plaintiff’s rationale for turning down the job was that it was not comparable to his previous employment (he stated it was more supervisory than managerial) and that it would have more than doubled his commute.

The judge again sided with the plaintiff, agreeing that “the increased commute is a factor which the plaintiff was permitted to take into account.”

Takeaways for employees

This decision is another example of the recent trend of Ontario courts refusing to enforce termination clauses if even one component does not comply with employment standards legislation.

A case like this demonstrates how important it is for terminated employees to seek legal advice upon termination. Employers may attempt to rely on a termination clause to limit employees’ entitlements, but often times these provisions will not hold up in court.

The employment lawyers at Monkhouse Law are experienced in tirelessly advocating for our clients and obtaining favourable results. If you have questions about what to do upon termination, contact us as soon as possible to discuss your rights and potential options moving forward.

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