Trucking industry employers in Ontario which operate interprovincially and/or internationally should take note of two recent decisions from the Ontario Superior Court of Justice (“ONSC”) which have serious implications for their potential liability when dismissing employees. For decades, no Ontario court had ever found a termination clause to be legally unenforceable for violating the Canada Labour Code (the “CLC”), but that recently changed when the ONSC rendered its decisions in Sager v. TFI International Inc. [Sager] and Sanghvi v. Norvic Shipping North America [Sanghvi].
These two decisions have major implications for federally regulated trucking industry employers, because they may now be held liable for wrongful dismissal damages when terminating the employment of an Ontario employee if the termination clause in the employee’s contract could potentially violate the CLC in any way in the future. This can mean the difference between an employee being entitled to several weeks of pay in lieu of notice/severance pay under the CLC and being entitled to up to 24 months of pay in lieu of common law notice (or potentially even more).
Background
It has been well-established law for decades that a termination clause which purports to contract out of an employee’s common law right to reasonable notice of termination (or pay in lieu thereof) is legally unenforceable where it violates provincial employment standards legislation, such as Ontario’s Employment Standards Act, 2000.
On the other hand, it was a long-standing question in Canada whether a federally regulated employee could successfully sue for wrongful dismissal on the basis that the termination clause in their contract violated the CLC. This is in part because most federally regulated employees are protected from being dismissed without cause after completing one year of employment under the CLC, and they can seek reinstatement by making an “unjust dismissal complaint” if they are dismissed for conduct that does not amount to just cause. Nonetheless, not every federally regulated employee wants or is eligible for reinstatement—some would prefer to receive a hefty payout and move on to a new job, which is now an option they may have following the Sager and Sanghvi decisions.
The Sager Decision
In Sager, the ONSC held that the termination clause in Mr. Sager’s employment agreement was legally unenforceable for violating the CLC and awarded him 9 months pay in lieu of common law reasonable notice.
Mr. Sager was employed as the Vice-President of Sales and Customer Care at Loomis Express for approximately two and a half years when his employment was terminated without cause. Mr. Sager’s employment contract contained a termination clause stating that he would receive the greater of: (i) three months’ base salary; and (ii) one month of base salary for each year of completed service, up to a maximum of 12 months. Further, the clause stated that this payment would be “inclusive of any and all requirements” that would be owing to Mr. Sager under the CLC.
The ONSC held that this clause was unenforceable because it violated s.231(a) of the CLC, which prohibits employers from altering any term or condition of an employee’s employment once they have received notice of termination. This is because the clause purported to limit the employer’s obligation to a single lump sum payment and stated that this was inclusive of all requirements under the CLC, such that it excluded continuation of the employee’s benefits during the notice period.
In the result, Mr. Sager was awarded 9 months’ of pay in lieu of common law reasonable notice, instead of just receiving 3 months’ pay pursuant to his contract. Notably, this was the first time an Ontario court ever found a termination clause to be legally unenforceable for violating the CLC.
The Sanghvi Decision
In Sanghvi, the ONSC held that the termination clause in Mr. Sanghvi’s employment contract was legally unenforceable for violating the CLC and awarded him 8 months of pay in lieu of reasonable notice.
Mr. Sanghvi was employed as a Senior-Vice President at Norvic Shipping North America Inc. for approximately three and a half years when his employment was terminated without cause during a corporate restructuring. The termination clause in his employment contract provided that he could be dismissed without any notice during his probationary period, and with one month of notice following the probationary period. Although Mr. Sanghvi was entitled to less than one month of pay in lieu of notice/severance pay under the CLC at the time of his dismissal, the ONSC found that this termination clause was legally unenforceable, because Mr. Sanghvi would have become entitled to more than one month of pay in lieu of notice/severance pay if had remained employed for long enough, such that the clause could violate the CLC in the future.
In the result, Mr. Sanghvi was awarded 8 months of pay in lieu of reasonable notice instead of just receiving one month of pay under his contract. This was the second time an Ontario court found a termination clause to be legally unenforceable for violating the CLC.
The Bottom Line
The recent Sager and Sanghvi decisions have serious implications for employers in the Ontario trucking industry that operate interprovincially and/or internationally, such that they are federally regulated and subject to the CLC. This is because such employers may now face increased liability when dismissing employees, in that they may be ordered to provide them with pay in lieu of common law reasonable notice if the termination clause in their employment agreements violate or could ever violate any minimum requirement of the CLC.
As a result, employers in the Ontario trucking industry which are subject to the CLC would be well-advised to have their employment contracts reviewed by an experienced employment lawyer, and if necessary, revise their contracts to comply with all minimum requirements under the CLC. Doing so will not only save money in the long run by minimizing potential liability when it is necessary to dismiss employees, it will also help avoid time-consuming and costly wrongful dismissal litigation. This is especially important where such employers need to dismiss a managerial employee or an employee with less than one year of service, because these employees are not eligible to seek reinstatement by making an unjust dismissal complaint under the CLC, such that they are far more likely to make a wrongful dismissal claim in the wake of the Sager and Sanghvi decisions.
If you have any questions regarding the enforceability of your current employment contracts or need assistance with preparing contracts with enforceable termination clauses, please do not hesitate to contact us for expert legal advice and guidance.
