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A key element of a wrongful dismissal claim is insufficient compensation for a dismissal without case (i.e., a layoff).
Termination provisions in an employment agreement aim to limit the employee's entitlement to the statutory minimum requirements of the ESA, thereby attempting to rebut the presumption of a considerably longer common-law notice period upon dismissal without cause.
The validity and enforceability of ESA-compliant termination provisions often depend on the following factors:
I) Invalidity of ESA Provisions
A termination clause is rendered invalid if any of its terms allow for compensation, severance, or benefit continuation that falls below the statutory minimums of the ESA. If a clause is invalidated, the employee may revert to the higher common-law entitlements, particularly for a long-term employee.
This is also true when the termination clause fails to explicitly state that the benefits and vacation pay will continue during the statutory notice period.
II) Ambiguity of the Termination Clause
Ambiguous wording can render a termination clause unenforceable. leading to an employee's common-law entitlements.
In Quesnelle v. Camus Hydronics Ltd. (2022 ONSC 6156), the plaintiff successfully argued that the termination provisions are void because they contravened the ESA. The court focused on the use of phrases like "AND/OR" and "ONLY", which suggested the employer could choose to pay either termination pay or severance pay, or could exclude the continuation of benefits during the notice period, contrary to the ESA. Because these condition violated the ESA, the entire provision was void.
The Court granted the plaintiff 10-months' common-law notice, significantly more than the statutory standard of 7 weeks' notice and 7.2 weeks' severance pay.
III) Unenforceability of ESA Provisions
If any part of the termination provision violates the ESA minimum standards, the entire clause is typically deemed unenforceable, which then entitles the employee to common-law notice.
In Waksdale v Swegon North America Inc. (2020), the "with cause" provision was found to violate the ESA. The termination clause stipulates that an employee is terminated without pay "for cause" but does not adhere to the higher threshold of "willful misconduct" required by the ESA to deny statutory notice. As a result, the Ontario Court of Appeal struck out the entire termination provision, including the separate, properly-drafted portion dealing with "without cause" dismissal, giving rise to common-law entitlements for the employee.
Furthermore, in Dufault v. Ignace (Township) (2024 ONCA 915), termination clauses that allowed employers to dismiss employees "at any time" in their sole discretion were found non-compliant with the ESA. This language violated sections that prohibits termination as a result of an employee's protected leave (s. 53) or in reprisal for exercising their rights (s. 74).
Common-Law vs. Statutory Entitlements
The compensation an employee receives upon a layoff is contingent upon the termination provisions established in the original employment agreement. Long-term employees, generally defined as those with five years or more of service, are more likely to be compensated with higher common-law entitlements.
a) ESA Minimums (Statutory)
The ESA sets minimum entitlements that employers must meet:
b) Common-Law Notice (Duty to Mitigate).
Long-term permanent employees are entitled to a reasonable common-law notice period unless this right is explicitly and validly limited by the employment contract. This approximately amounts to one month per year of service, while the length of the reasonable notice period is governed by the following factors:
Under the common law, employees have a duty to mitigate damages by actively seeking comparable employment to minimize the employer's liability.
Fixed-Term vs. Indefinite Contracts
For fixed-term employment contracts, unclear or ambiguous termination provisions can result in compensation for the employee for the remainder of the contract term. This payment is generally not subject to the duty to mitigate.
In the case of Howard v. Benson Group Inc. (2015 ONSC 2638), the termination clause was found to be drafted for an indefinite-term employee, stating that termination pay would be "in accordance with the Employment Standards Act of Ontario." There is no enforceable early termination clause that stipulates amounts paid for the fixed term upon dismissal without cause. As the clause was deemed invalid for a fixed-term contract, the employee was awarded the balance of his five-year contract when terminated after 23 months.
It highly suggests consulting with a legal professional to review the termination provisions in the employment contract before signing, as the employer's offer is limited to the minimums compliant with the ESA. If the long-term employee signs an employment contract that adheres only to the ESA minimum standards, they may not be reasonably compensated with common-law notice if being laid off.
It is also recommended to have your severance package reviewed to ensure you are reasonably compensated before signing the final release in the "without cause" dismissal.
Disclaimer: This information is not intended to be construed as a legal advice, but strictly for your information only. Please contact Trustworthy Legal Services for an independent legal advice in your particular situation. The first consultation is required prior to the retainer of your case.
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A key element of a wrongful dismissal claim is insufficient compensation for a dismissal without case (i.e., a layoff).
Termination provisions in an employment agreement aim to limit the employee's entitlement to the statutory minimum requirements of the ESA, thereby attempting to rebut the presumption of a considerably longer common-law notice period upon dismissal without cause.
The validity and enforceability of ESA-compliant termination provisions often depend on the following factors:
I) Invalidity of ESA Provisions
A termination clause is rendered invalid if any of its terms allow for compensation, severance, or benefit continuation that falls below the statutory minimums of the ESA. If a clause is invalidated, the employee may revert to the higher common-law entitlements, particularly for a long-term employee.
This is also true when the termination clause fails to explicitly state that the benefits and vacation pay will continue during the statutory notice period.
II) Ambiguity of the Termination Clause
Ambiguous wording can render a termination clause unenforceable. leading to an employee's common-law entitlements.
In Quesnelle v. Camus Hydronics Ltd. (2022 ONSC 6156), the plaintiff successfully argued that the termination provisions are void because they contravened the ESA. The court focused on the use of phrases like "AND/OR" and "ONLY", which suggested the employer could choose to pay either termination pay or severance pay, or could exclude the continuation of benefits during the notice period, contrary to the ESA. Because these condition violated the ESA, the entire provision was void.
The Court granted the plaintiff 10-months' common-law notice, significantly more than the statutory standard of 7 weeks' notice and 7.2 weeks' severance pay.
III) Unenforceability of ESA Provisions
If any part of the termination provision violates the ESA minimum standards, the entire clause is typically deemed unenforceable, which then entitles the employee to common-law notice.
In Waksdale v Swegon North America Inc. (2020), the "with cause" provision was found to violate the ESA. The termination clause stipulates that an employee is terminated without pay "for cause" but does not adhere to the higher threshold of "willful misconduct" required by the ESA to deny statutory notice. As a result, the Ontario Court of Appeal struck out the entire termination provision, including the separate, properly-drafted portion dealing with "without cause" dismissal, giving rise to common-law entitlements for the employee.
Furthermore, in Dufault v. Ignace (Township) (2024 ONCA 915), termination clauses that allowed employers to dismiss employees "at any time" in their sole discretion were found non-compliant with the ESA. This language violated sections that prohibits termination as a result of an employee's protected leave (s. 53) or in reprisal for exercising their rights (s. 74).
Common-Law vs. Statutory Entitlements
The compensation an employee receives upon a layoff is contingent upon the termination provisions established in the original employment agreement. Long-term employees, generally defined as those with five years or more of service, are more likely to be compensated with higher common-law entitlements.
a) ESA Minimums (Statutory)
The ESA sets minimum entitlements that employers must meet:
- Notice/Termination Pay: One week of notice or pay in lieu per year of service, capped at a maximum of eight weeks.
- Severance Pay: Employees with five years or more of service are entitled to severance pay (one week per year of service, capped at 26 weeks) if one of the following criteria is met:
- The employment of 50 or more employees is severed within a six-month period due to a permanent discontinuance of all or part of the employer's business.
- The employer has an annual payroll of $2.5 million or more.
b) Common-Law Notice (Duty to Mitigate).
Long-term permanent employees are entitled to a reasonable common-law notice period unless this right is explicitly and validly limited by the employment contract. This approximately amounts to one month per year of service, while the length of the reasonable notice period is governed by the following factors:
- The employee's age.
- The employee's position.
- The employee's level of compensation and
- The availability of similar employment, considering the employee's experience, training and qualifications.
Under the common law, employees have a duty to mitigate damages by actively seeking comparable employment to minimize the employer's liability.
Fixed-Term vs. Indefinite Contracts
For fixed-term employment contracts, unclear or ambiguous termination provisions can result in compensation for the employee for the remainder of the contract term. This payment is generally not subject to the duty to mitigate.
In the case of Howard v. Benson Group Inc. (2015 ONSC 2638), the termination clause was found to be drafted for an indefinite-term employee, stating that termination pay would be "in accordance with the Employment Standards Act of Ontario." There is no enforceable early termination clause that stipulates amounts paid for the fixed term upon dismissal without cause. As the clause was deemed invalid for a fixed-term contract, the employee was awarded the balance of his five-year contract when terminated after 23 months.
It highly suggests consulting with a legal professional to review the termination provisions in the employment contract before signing, as the employer's offer is limited to the minimums compliant with the ESA. If the long-term employee signs an employment contract that adheres only to the ESA minimum standards, they may not be reasonably compensated with common-law notice if being laid off.
It is also recommended to have your severance package reviewed to ensure you are reasonably compensated before signing the final release in the "without cause" dismissal.
Disclaimer: This information is not intended to be construed as a legal advice, but strictly for your information only. Please contact Trustworthy Legal Services for an independent legal advice in your particular situation. The first consultation is required prior to the retainer of your case.
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Like or/Share this article if you find it is useful.
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