The Ontario Superior Court of Justice has recently released a decision restoring some power to employers in the context of employment contracts. While the landmark case of Waksdale v Swegon North America determined that, employment agreements permitting employees to be terminated without notice for just cause were contrary to employment legislation(and unenforceable), a recent court decision suggests that there is more to the story.
Overview of Recent Ontario Case
In Rahman v Cannon Design Architecture Inc, the plaintiff brought a wrongful dismissal claim against her former employer after she was terminated in April of 2020 without cause.
Prior to being hired, the plaintiff was given an offer letter, as well as an “Officer’s Agreement” further laying out certain terms of her employment contract. The offer letter clearly stated that the terms outlined therein would govern and apply in the event that there was a conflict with the terms of the Officer’s Agreement.
The plaintiff also sought independent legal advice in relation to her offer of employment, and the guidance she received focused largely on the offer letter’s termination provisions, as well as employee entitlements under both employment standards legislationand common law. Her lawyer also negotiated material improvements to her offer of employment.
After being terminated, the plaintiff claimed that the termination provisions in her employment agreement were void because they allegedly contravened the minimum standards found in the Employment Standards Act of Ontario (ESA)in various ways.
The Court Stands up for Employers and Fairly Negotiated Employment Agreements
The most important ground on which the plaintiff claimed the termination provisions were void related to dismissal for just cause. The relevant term of the employment agreement read as follows:
[The employer] maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal.
Citing the Waksdale case, the plaintiff argued that the provision in question was wholly unenforceable because it would allow the employer to terminate her without notice in situations not contemplated by the ESA.
In a favorable analysis for employers, the Ontario Superior Court of Justice concluded the following when assessing the termination provisions at play in this case:
- The provisions were negotiated without rush and with the benefit of independent legal advice between parties who were reasonably sophisticated. As well, there was no compulsion or any significant disparity in bargaining power.
- As a result of the negotiations, the employee actually received material improvements to her employment agreement and benefits in excess of the minimums prescribed by the ESA.
- The offer letter contained an explicit clause providing that the employer’s maximum liability for common law notice, termination pay, benefits continuation, severance pay, or payment in lieu of notice, would be based upon the notice stipulated in the Officer’s Agreement or the minimum entitlements outlined in the ESA, whichever was greater.
Ultimately, the court upheld the termination provisions as valid.
For employers, the importance of this decision cannot be overstated. It suggests that courts will not allow former employees to use the Waksdale decisionas a tool to render all termination provisions unenforceable due to “contractual technicalities”. Rather, contracts will be assessed based on the steps taken prior to entering into the agreement and the overall terms negotiated.
What Employers Need to Know About Mutual Intention in Contract Formation
Employers should understand that every contract they enter into will be interpreted based upon the mutual intentions of both parties. The courts will look to the circumstances surrounding the creation of the employment agreement, and each case will be different.
In Rahman, the court refused to infer that the employer intended to contract out of the minimum standards prescribed by employment legislation, when the parties who negotiated the contract never took objection to the language used at any point in time.
Furthermore, the court recognized that legal uncertainty regarding fairly negotiated employment contracts would result in circumstances where employers would fear deviating from the ESA in any way. As the court stated, “there are no winners in such a world.”
The Bottom Line for Employers
The Rahman case has allowed employers to regain some power in relation to employment contracts in the wake of Waksdale, but there still remains a degree of legal uncertainty. When it comes to such employment agreements, the last thing employers want is to be found on the wrong side of the law and liable for significant damages.
Accordingly, employers should obtain expert legal advice if they have any questions or concerns related to their employment contracts, or if they require assistance drafting such agreements.