An Ontario court recently ruled that a termination clause which violated the Employment Standards Act, 2000 ('ESA') in a fixed-term employment contract did not invalidate the fixed-term nature of the contract, meaning that the employee was entitled to be paid for the remainder of the fixed-term upon dismissal (which was more than she would have otherwise been entitled to).
In Kopyl v. Losani Homes (1998) Ltd. o/a Losani Homes [Kopyl], the Ontario Superior Court of Justice held that the one-year fixed term of Ms. Kopyl's employment contract was not rendered void by the fact that the contract also included a termination clause which violated the ESA. In reaching this conclusion, the Court rejected the employer's argument that the inclusion of the unlawful termination clause rendered either the entire fixed-term contract or the fixed-term nature of the contract void under the principle from Waksdale v. Swegon North America Inc. [Waksdale]. (In short, the Waksdale principle states that if any termination clause in an employment contract violates the ESA, it renders all other 'œtermination clauses' in the contract void.)
Kopyl is an unfavourable decision for Ontario employers because it effectively means that employers cannot rely on the principle from Waksdale to limit their liability when terminating someone employed under a fixed-term employment contract which contains an unenforceable termination clause, as further discussed below.
Ms. Kopyl began her employment with Losani Homes on July 6, 2020, under a one-year fixed-term contract. Under the contract, Ms. Kopyl would have earned a salary of $150,000 over the one-year term. As a fixed-term contract, the contract provided that Ms. Kopyl's employment would automatically end at the end of the one-year term. However, the contract also included a termination clause which allowed Losani Homes to terminate her employment before the end of the fixed term by providing her with certain entitlements.
Ultimately, Losani Homes dismissed Ms. Kopyl sometime prior to the end of the one-year term. Although the court's decision does not specify when Ms. Kopyl was dismissed, it was presumably early in the one-year term because the positions the parties later took in litigation suggest that the remainder of the term exceeded the pay in lieu of reasonable notice Ms. Kopyl would be entitled to receive.
After her dismissal, Ms. Kopyl filed an application with the court requesting that it interpret her employment contract with Losani Home. In particular, she requested that the court declare that the one-year fixed term of the contract was not void due to the contract also containing an unlawful termination clause, and that she was therefore entitled to be paid for the remainder of the one-year term. Ms. Kopyl also argued that the one-year fixed term in the contract was not the same as a 'œtermination clause' for the purposes of the Waksdale principle, despite that the term obviously deals with when the employment relationship would end.
In response, Losani Homes argued that the termination clause in Ms. Kopyl's contract violated the ESA and that this rendered either the fixed term or the entire contract void pursuant to Waksdale. Consequently, Losani Homes argued that Ms. Kopyl was not entitled to be paid for the remainder of the one-year term, such that she would only be entitled to termination pay in lieu of reasonable notice (which was presumably significantly less).
The Court's Decision
The Ontario Superior Court of Justice ruled in Ms. Kopyl's favour, holding that the unlawful termination clause did not render her entire contract or its one-year fixed term void. Consequently, the court declared that Ms. Kopyl was entitled to be paid for the remainder of the one-year term.
In reaching this conclusion, the court held that a clause in a contract stating that it is for a fixed term is not the same as a termination clause which allows the employer to dismiss the employee before the end of the term by providing them with certain entitlements. Furthermore, the court held that a fixed term does not involve the same 'œmischief' that the principle in Waksdale is meant to address. Namely, the Waksdale principle is intended to disincentivize employers from including termination clauses in employment agreements which violate the ESA, by preventing them from benefiting from any termination clause in a contract where any of the termination clauses are unlawful. On the other hand, the court found that fixed term contracts do not violate the ESA in any way and are not unlawful. As a result, the court held that the inclusion of the unlawful termination clause in Ms. Kopyl's fixed-term contract did not void the whole contract or the fixed term.
In the result, the court declared that Ms. Kopyl was entitled to be paid for the remainder of the one-year fixed term.
The Bottom Line
Kopyl suggests that if employers dismiss someone employed under a fixed-term contract which does not contain an enforceable termination clause, then they will generally be liable to pay the employee for the rest of the fixed term, which is often a far greater amount than the pay in lieu of common law reasonable notice that the employee would otherwise be entitled to.
Moreover, Kopyl is another example of how using fixed-term employment contracts can actually create more liability for employers, despite that many employers still believe the opposite to be true. Another recent example of this is Tarras v. The Municipal Infrastructure Group Ltd., in which the Ontario Superior Court of Justice awarded the plaintiff employee $480,000 for the remaining 23 months of a fixed-term contract. (To read our blog on Tarras, please click here).
At Hyde HR Law, we offer expert legal advice on drafting, reviewing, and revising employment agreements. Please do not hesitate to contact us.