To employers’ dismay, Ontario courts have invalidated termination clauses in employment contracts for increasingly technical reasons over the last several years, frequently resulting in costly wrongful dismissal awards against employers. As a result, one may question, do the Ontario courts ever uphold these termination clauses?
Thankfully, the Ontario Court of Appeal (“ONCA”) recently upheld a termination clause as legally enforceable, providing employers with reason to rejoice. In Bertsch v. Datastealth Inc. [Bertsch], the ONCA upheld a judge’s decision finding the termination clause in an employment contract to be legally enforceable and dismissing the employee’s wrongful dismissal action against his former employer.
As Bertsch demonstrates, termination clauses which have been carefully drafted by an experienced lawyer and which take into account the recent developments in employment law can be legally enforceable.
Background
Gavin Bertsch (“Mr. Bertsch”) was employed by Datastealth Inc. (“Datastealth” or the “Employer”) for approximately just eight and a half (8.5) months as a vice-president, until he was dismissed without caused in June 2024. Prior to commencing his employment, Mr. Bertsch signed a written employment contract. Among other things, the termination clause in his contract provided:
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“If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the [ESA] and its Regulations”; and
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“You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.” [Emphasis added.]
Despite him agreeing to the termination clause, Mr. Bertsch subsequently commenced an action for wrongful dismissal against Datastealth. In doing so, he argued that the termination clause was legally unenforceable because: (i) it was ambiguous; and (ii) it failed to properly reference the applicable standard for when an employee is not entitled to receive any notice, termination pay or severance pay under the Employment Standards Act, 2000 (“ESA”) and its regulations.
Notably, employees are only disentitled from receiving notice, termination pay, and severance pay under the ESA where they have been “guilty of willful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” (“Wilful Misconduct”).
Mr. Bertsch’s argument was essentially that the termination clause was ambiguous because it stated that he could be dismissed without notice in “certain circumstances” without explicitly referencing the Wilful Misconduct standard. Accordingly, he argued that the clause should be interpreted as “potentially violating” the ESA by permitting him to be dismissed for cause and without notice even where he was not guilty of Wilful Misconduct.
In response, Datastealth brought a motion under Rule 21 of the Rules of Civil Procedure (the “Rules”), which allows any party to request that a question of law be determined before trial where this may resolve the lawsuit without a trial or substantially shorten the trial. Datastealth argued that the termination clause was legally enforceable, and that Mr. Bertsch’s wrongful dismissal action should be dismissed as a result.
The Motion Judge’s Decision
The motion judge ruled in Datastealth’s favour and dismissed Mr. Bertsch’s wrongful dismissal action because he found the termination clause to be legally enforceable.
In reaching this conclusion, the motion judge first noted that both parties agreed that if the termination clause permitted Mr. Bertsch to be dismissed without notice for “just cause” (rather than Wilful Misconduct), then it would be legally unenforceable for violating the ESA. They also agreed that if the termination clause were ambiguous, then it should be interpreted in the manner most favourable to Mr. Bertsch, due to the power imbalance between employees and employers.
Nonetheless, the motion judge found that the termination clause: (i) was clear and unambiguous; (ii) did not allow for dismissal without notice for “just cause”; and (iii) it therefore did not violate the ESA. Interestingly, the motion judge reached this conclusion despite noting that the termination clause was not simple and suggesting that an employee would need legal advice to properly understand it.
In any event, the motion judge dismissed Mr. Bertsch’s wrongful dismissal action.
Mr. Bertsch appealed this decision, arguing that the motion judge erred by finding the termination clause to be unambiguous.
The Ontario Court of Appeal’s Decision
The ONCA ultimately dismissed Mr. Bertsch’s appeal, ruling that the motion judge made no error by finding the termination clause unambiguous and compliant with the ESA.
In reaching this conclusion, the court held that a finding of ambiguity requires “something more than the mere existence of competing interpretations”, and that the clause in this case was not ambiguous when reasonably interpreted. Interestingly, the court also found that this was “not a case where the agreement uses legal terms or language that might be confusing to a person not versed in the law”, despite the motion judge previously stating the clause was “not simple” and implying that an employee would require legal advice to understand it.
Regardless, the court upheld the dismissal of Mr. Bertsch’s wrongful dismissal action and ordered him to pay $10,000 in costs to Datastealth for the appeal.
The Bottom Line
Betsch is great news for Ontario employers, as it represents a rare instance of an Ontario appellate court upholding a termination clause as legally. This demonstrates employers can limit their liability with termination clauses which have been carefully drafted by an expert lawyer in light of recent developments in employment law. Moreover, drafting an ESA-compliant termination clause is not as herculean a task as the recent decisions upholding such clauses might suggest. Simply put, employees are far less likely to commence wrongful dismissal actions against their former employers where their contract contains a well-drafted clause, which is why such cases rarely go to trial.
If you require assistance with minimizing your business’ potential liability when ending employment relationships, please do not hesitate to contact us for expert legal advice and guidance.
