In the highly anticipated Ontario Court of Appeal (“ONCA”) decision of Rahman v. Cannon Design Architecture Inc. [“Rahman”] released on June 8, 2022, the ONCA unanimously overturned the Ontario Superior Court of Justice earlier Rahman decision, which we previously wrote about last year (read our previous blog here to learn more). The ONCA reiterated that the Waksdale v. Swegon North America [“Waksdale”] legal principle is still supreme law.
In a favourable decision for employers last year, the Ontario Superior Court of Justice in Rahman dismissed an employee’s wrongful dismissal action and held that even though the “just cause” termination provision in the employee’s contract contravened the Employment Standards Act, 2000 (“ESA”), it did not invalidate other termination provisions for several reasons:
- The parties were reasonably sophisticated with relatively equal bargaining power, and the employee sought independent legal advice when negotiating her contract.
- Since the negotiations were between sophisticated parties, this resulted in improvements in the employment agreement to the benefit of the employee; and
- The mutual intention was for all parties to comply with the minimum standards set out in the ESA.
The Superior Court’s Rahman decision was contrary to the Waksdale legal principle. Waksdale is a case that established the legal principle that, if an employer’s “just cause” termination clause did not comply with the minimum standards set out in the ESA, this would void an otherwise legally enforceable “without cause” termination clause within the same employment agreement. This landmark decision rendered many termination clauses in Ontario unenforceable, with the exceptional circumstances noted above in Rahman.
When the Rahman decision was released in 2021, it provided hope to employers that the courts may shift from the rigid and strict interpretation of employment contracts that had arisen since Waksdale. However, that hope was short-lived with the release of the subsequent ONCA decision in Rahman, which overturned the lower court’s decision and followed the Waksdale legal principle instead.
The ONCA’s Decision
The ONCA confirmed that “it is the wording of a termination provision which determines whether it contravenes the ESA,” and “allowing subjective considerations” – such as the employee’s sophistication, access to legal advice, and the parties’ intention to comply with the ESA’s minimum standards – “to distort and override the wording” of the termination provision is an error of law.
The Bottom Line
The ONCA’s decision clarifies the law, stating that if a termination provision in an employment agreement violates the ESA, then all the termination provisions will be unenforceable, regardless of any subjective considerations that may be present in the case at hand.
The ONCA’s decision also clarifies that an employee’s sophistication will no longer be treated as a relevant factor in interpreting termination clauses and obtaining independent legal advice will not save a termination clause which violates the ESA.
Employers who wish to limit their liability when terminating employees are advised to seek legal advice in drafting lawful employment contracts, to ensure the enforceability of the termination provisions being used. Further, employers should treat their employment contracts as “living documents” which must be updated consistently to keep up with the ever-changing law.
At Hyde HR Law, we offer expert legal advice on reviewing and drafting employment contracts. Please do not hesitate to contact us.