A. INTRODUCTION
The Ontario Superior Court of Justice released its decision
in Simpson v Global Warranty Management Corp. (“Simpson”) on February 4, 2014. In this case, Eoin Simpson (the
“plaintiff”), who was employed as a claims adjuster for Global Warranty
Management Corp. (the “defendant”), brought an action against the defendant for
damages for alleged wrongful dismissal. The important issue in this decision
was whether the employer may rely on a contractual termination “without cause”
clause limiting the employee to those minimum amounts of termination pay
prescribed by the Employment Standards Act, 2000 (“ESA”),
notwithstanding that the employer defended the lawsuit on the basis that the
termination was for “just cause”. This Charity Law
Bulletin explores the Simpson decision, which upheld the employment
contract limiting the plaintiff to minimum termination pay entitlements under
the ESA, and explains how this case relates to charities and not-for-profits.
B. FACTS
The plaintiff was an employee for the defendant. Prior to
commencing work for the defendant in May 2003, the plaintiff voluntarily signed
a letter accepting the terms of a written employment contract. The employment
contract included a termination clause stating that:
…unless an employee is terminated for
cause, an employee’s employment may be terminated at the sole discretion of the
Employer and for any reason whatsoever upon providing the employee with one (1)
week’s notice or pay in lieu thereof, subject to any additional notice, pay in
lieu thereof or severance that may be required to meet the minimum requirements
of the Employment Standards Act R.S.O. 1990, c.E 14, as amended from
time to time.
The plaintiff continued in his employment for almost eight
years. However, on February 4, 2010, the plaintiff was advised by the
defendant that he was being laid off for a period of time. He was not recalled
within the time period specified in the ESA, and was subsequently paid an
amount equivalent to thirty days pay, plus accrued vacation pay.
The plaintiff challenged the “lay-off”, claiming it
constituted a wrongful dismissal, and sought damages equivalent to twelve
months pay in lieu of notice. The defendant defended the lawsuit on the basis
that it had just cause to terminate the plaintiff, and that if just cause did
not exist, his damages were limited to the amounts prescribed in the above
termination clause, which had already been paid.
C. DISMISSAL FOR JUST CAUSE
The court first considered whether or not
the plaintiff was dismissed for just cause. The plaintiff took the position
that the February 4, 2010 “lay-off” did not allege cause. In support of that
position,he noted that an email received on February 5, 2010 stated that if he
was not recalled within 13 weeks, he would receive 30 days’ pay in lieu of
notice, along with further amounts for vacation pay. According to the
plaintiff, these actions by the employer were not indicative of any “just
cause” termination.
The defendant claimed that the plaintiff
was dismissed for cause, as the plaintiff “was not performing to acceptable
standards” and his conduct justified termination. The defendant also alleged
that it couched the termination as a “lay-off” to cushion the personal impact
on the plaintiff. To assess the evidence regarding the reason for the
dismissal, the court examined the plaintiff’s performance appraisals, which
awarded the plaintiff three ratings of “very good”, six ratings of “good”, and just
one rating of “below average”. Upon reviewing all the evidence, the court found
that the plaintiff’s performance could not meet the legal standard to justify
dismissal for cause. In the result, the court agreed with the plaintiff that he
was not dismissed for just cause.
D. RELIANCE ON THE EMPLOYMENT CONTRACT
After finding that the plaintiff was not
dismissed for just cause, the court turned to the important question of whether
the employment contract precluded the plaintiff from being awarded damages
apart from the minimum allowable under the ESA, as set out in the employment
contract. The plaintiff argued that the damage limitation clause in the
employment contract could not be relied on, as it was followed by the words
“…unless an employee is terminated for cause…” The plaintiff further argued
that the defendant could not rely on the damage limitation clause because it
had alleged “just cause” in its defence to the plaintiff’s claim.
However, the court rejected this argument, relying instead
on other wording in the employment contract that stated that damages would be
limited to the minimum prescribed by the ESA. It compared the damage limitation
clause in this case to that in a similar case, Roden v The Toronto Human
Society (“Roden”).
In that case, the Ontario Court of Appeal referred to the Supreme Court of
Canada case of Machtinger v HOJ Industries Ltd (“Machtinger”) and stated that an employment contract that provides for less than the
statutory minimum notice required by the ESA is void. However, the “without
cause” termination provisions were held to be valid in both Roden and Machtinger,
as they incorporated the minimum notice periods prescribed by the ESA. For this
reason, the court held that the damage limitation clause in Simpson was
also valid.
The court then provided further analysis as to the basis
upon which the defendant could rely on the employment contract. It relied on Roden,
a case in which the employees argued that the employer could not raise
just cause as a defence because the employer had treated the employees as if
they were dismissed without cause. The Court of Appeal in Roden held
that the employer could raise just cause as a defence, as the question of cause
was a live issue that was raised in the statement of defence. The Court of
Appeal further stated the fact that prior to litigation, the employer initially
treated the dismissals as if they were without cause was not determinative of
their legal rights and obligations.
In Simpson, the defendant also treated the
plaintiff as if he was dismissed without cause prior to litigation, paying the
plaintiff 30 days’ salary (i.e. the minimum notice period required by
the ESA given the plaintiff’s length of service). Similarly, the court stated
that the defendant’s pre-litigation conduct did not preclude it from relying on
a just cause defence, or from arguing in the alternative that the plaintiff was
dismissed without cause but that the damage limitation clause ought to apply.”
Based on the above reasons, the court
held that the purpose of the limitation clause was to limit the plaintiff’s
damages to the minimum damages required under the ESA in cases of dismissal
without cause. The court stated that there was no ambiguity in the employment
contract, and the plaintiff voluntarily signed the employment contract. As
such, as the plaintiff was found by the court to have been dismissed without cause,
the court held that the plaintiff was limited to the minimum damages allowable
under the ESA in accordance with the employment contract. The plaintiff’s claim
was therefore dismissed.
E. CONCLUSION
The Simpson case demonstrates to all
employers, including charities and not-for-profits, the importance of properly
drafted termination clauses in employment contracts in order to effectively
limit their potential liability for terminated employees. Through proper
drafting, charities and not-for-profits may, as demonstrated in Simpson,
be able to limit their termination liability to the minimums allowable under labour
standards legislation. Such contractual terms are of particular importance to
charities and not-for-profits, which may not have available funds to pay large
termination packages to terminated employees.