By Barry W. Kwasniewski and Cameron A. Axford

Ontario Court Rules Contractual Termination Provisions Not Enforceable

Employment contracts must comply with at least the minimum standards set out in the Ontario Employment Standards Act, 2000 (“ESA”), as failure to do so will invalidate the termination provisions of these contracts. In a termination situation, an unenforceable termination provision in an employment contract may entitle an employee to common law reasonable notice, which is often more than what would have been granted under a properly drafted contract.

Such a situation occurred in Ramcharan v. Wesdome Gold Mines Ltd., decided by the Ontario Superior Court of Justice (the “Court”) on August 28, 2023. Vincent Ramcharan (the “Plaintiff”) was a director at Wesdome Gold Mines Ltd., a mining, exploration and development company (the “Defendant”). When hired, the Plaintiff signed an employment agreement (“the Agreement”) drafted by the Defendant, which contained a termination provision that read as follows (the “Termination Provision”):

This Agreement and your employment with the Company may be terminated at any time for just cause, without prior notice or any payment in lieu of notice or payment of any kind whatsoever, either by way of anticipated earnings or damages of any kind, by advising you in writing.

The Company may at any time terminate this Agreement and your employment, in accordance with the Employment Standards Act, (Ontario) (the "ESA"). The provisions of this paragraph will not apply in circumstances where you resign from employment or are terminated for cause. [Emphasis added.]

The Plaintiff’s compensation package included a base salary of $164,800, a month of vacation, eligibility in bonus and stock option programs, benefits and 5% RRSP contributions. After just over one year of employment, the Plaintiff was terminated without cause, and was provided with two weeks pay in lieu of notice, as per the ESA, as well as accrued vacation pay and 6 months of health and dental benefits.

The Plaintiff sought summary judgement for 10 months’ pay, 10% pay in lieu of benefits, the net difference in value between the strike price and the closing price of his stock options over the 10 month notice period, vacation pay on bonuses and ESA termination pay, interest, and costs. The Plaintiff argued that he was entitled to common law reasonable notice as the terms of the Agreement did not comply with the ESA in several respects. The Defendant denied this, stating that the Termination Provision in the Agreement ousted any common law entitlements, and that the Agreement was compliant with ESA requirements.

While the Defendant did not allege that the Plaintiff was dismissed for cause, the Court stated that it does not impact the determination on the enforceability of the Termination Provision. The common law allowed for dismissal of employees without notice or pay in lieu of for “just cause”. However, in Ontario the common law principle of “just cause” has been impacted by recent court decisions, which have found that terminated employees can only be deprived of their ESA entitlements to statutory severance pay and termination pay if their conduct falls within Ontario Regulation 288/01.

Ontario Regulation 288/01: Termination and Severance of Employment, a key Regulation of the ESA, establishes that “employees who are not entitled to notice of termination or termination pay” include:

“An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”

Note that this same wording also applies to severance pay as per section 9(1) of that Regulation.

This is a threshold which well exceeds simple “for cause” termination at common law, and instead imposes a high onus on employers to prove. The Termination Provision, if allowed, would have disentitled the Plaintiff from the ESA standards in the case of termination for cause, and was therefore inconsistent with the ESA. A landmark Court of Appeal decision, Waksdale v. Swegon North America Inc., found that noncompliance with the ESA in a for-cause provision will invalidate any other termination provisions in an employment agreement. Waksdale has been followed in several later Ontario judicial decisions.

As the “for cause” termination provision was not compliant with the ESA, the entirety of the Termination Provision was unenforceable, despite the fact they were not immediately relevant to the case at hand, since the Plaintiff was terminated without cause. As the Defendant only provided him with what was minimally required under the ESA, and the common law standards are higher than what is statutorily required, they did not adequately compensate the Plaintiff upon termination, and were liable for the pay in lieu of common law reasonable notice.

The Court ultimately found that the Plaintiff was entitled to damages for six months’ notice less any statutory amounts paid, 10% of his base salary for benefits in lieu of notice less any amounts paid, and vacation pay based on his 2019 bonus and on severance pay less any amounts paid.

Ramcharan serves as a reminder that employment contracts need to be carefully drafted to ensure compliance with the ESA. An unenforceable provision, even one not directly related to a situation at hand, can defeat the enforcement of the termination provisions in a contract. Charities, not-for-profits, and employers in general should contact legal counsel for assistance with drafting these contracts when the need arises.

​Read the October 2023 Charity & NFP Law Update