Court Upholds Termination Clause in Wrong Dismissal Action
In Rahman v Cannon Design Architecture Inc., 2021 ONSC 5961 (Rahman), the Ontario Superior Court of Justice upheld a termination clause in favour of an employer in a wrongful dismissal action where it found no inequality of bargaining power and the employee received independent legal advice.
Rahman distinguishes last year’s landmark Court of Appeal decision of Waksdale v. Swegon North America Inc., 2020 ONCA 391,which found that if any part of a termination provision in the employment contract breached the Ontario Employment Standards Act, 2000 (“ESA”) the entire provision would be rendered unenforceable.
Facts
In Rahman, Ms. Rahman was a senior employee with Cannon Design Architecture Inc. She was terminated after approximately four years of service without cause. Ms. Rahman’s original written employment agreement contained a “just cause” provisions that provided as follows:
Cannon Design maintains the right to terminate your employment at any time without notice or payment in lieu thereof, if you engage in any conduct that constitutes just cause for summary dismissal.
Ms. Rahman was encouraged to seek independent legal advice and engaged in negotiations with the employer. Ultimately, the parties entered into an employment agreement that contained in part the just cause termination clause above and a clause that gave Ms. Rahman an enhanced notice period (two months if she was terminated within the first five years of employment, conditional on executing a release).
Ms. Rahman’s employment agreement contained similar language to a termination provision that was found to be invalid in Ojo v. Crystal Claire Cosmetics Inc., 2021 ONSC 1428. In Ojo, the Superior Court applied Waksdale and found the termination provision in that case was unenforceable, as it attempted to circumvent the employee’s minimum entitlements under the ESA.
Ms. Rahman brought a claim for wrongful dismissal and argued that the termination provisions of her employment agreement ESA minimum standards and were void because: (i) the “just cause” termination provision allegedly permitted termination without notice in circumstances beyond those permitted by the ESA; (ii) the notice provisions purported to pay base salary only during the notice period; (iii) lack of severance pay in the employment agreement; (iv) insufficient notice provisions in future; and (v) stripping of bonus entitlement even if fully earned.
Analysis
Justice Dunphy of the Superior Court, distinguished Rahman from both Waksdale and Ojo and found no inequality of bargaining power between Ms. Rahman and her employer. His Honour noted that Ms. Rahman was “a woman of experience and sophistication” who obtained legal advice about the termination provisions and engaged in negotiations with the employer, which led to a material benefit (an enhanced notice period).
Further, Justice Dunphy commented that the circumstances of other decisions such as Ojo were “of limited assistance in construing the intention of these parties to this agreement in this context.” His Honour noted that the parties at instant had mutual intent to comply with ESA minimum standards:
[28] The twice-repeated language of this contract quite explicitly follows the standard suggested by Machtinger and referentially incorporates the ESA minimum standards. It is not necessary to enumerate them exhaustively in the contract, particularly when they are subject to periodic change. Every contract – including this one – must be interpreted with a view to giving expression to the mutual intention of the parties as expressed in the words used by them.
[29] There is no basis in this case to imply into the general phrase “just cause for summary dismissal” a standard below the ESA standard of wilful misconduct absent any evidence that such represents a reasonable construction of the intention of the parties in the context of the employment agreement in question. [….]
[30] [….] If none of the parties to the contract at its inception – having turned their minds to the very subject of ESA minimum standards applicable on termination and their priority – took objection to the general “just cause for summary dismissal” language used it would be entirely illogical to infer nevertheless an intent to contract out of well-known and long-standing minimum standards in the jurisdiction in which they were operating.
Ultimately, Justice Dunphy found that there was no basis to apply a strict or adverse construction approach to the termination provisions of the employment agreement because:
Ms. Rahman was reasonably sophisticated and benefited from independent legal advice and time to negotiate the employment agreement before signing;
There was no marked inequality of bargaining power;
The termination provisions in question were subject to negotiation, but Ms. Rahman’s lawyer did not object to the “just cause” termination provision;
The negotiations resulted in a discernable improvement for Ms. Rahman; and
The final draft of the agreement contained a “saving provision” that provided Ms. Rahman would, upon termination, receive no less than her minimum entitlements under the ESA, even if the Agreement purported to provide for a lesser payment in some circumstances.
Key Takeaways for Employers
It remains to be seen whether Rahman will be appealed. For now, the decision suggests that in specific circumstances – namely, where the employee is sophisticated, has the benefit of independent legal advice, and there is clear intent by the parties to abide by the ESA – a termination provision may not be strictly interpreted against the employer.
However, this aspect of the decision is already being scrutinized. Two recent decisions penned by Justice Black of the Superior Court of Justice – Steve Livshin, 2021 ONSC 6796 and Campbell-Givons v. Humber River Hospital, 2021 ONSC 6317– found that an employee’s sophistication and/or legal representation are irrelevant if the employment agreement is illegal. In the latter decision, Justice Black found that an analysis of an employee’s sophistication and opportunity to obtain legal advice was “problematic”, noting at para. 46 that:
A termination clause cannot comply with the ESA for some employees but violate the ESA for others. It either violates the ESA or does not, and it either enforceable or not. It is a straightforward matter for an employer to incorporate clauses in an employment agreement that comply with ESA standards, and when that is not done the court should not be asked to rewrite the language of the termination provisions to achieve compliance.
Whether or not Rahman, Steve Livshin, or Campbell-Givons are appealed, employers should take note of these best practices:
Encourage employees to seek independent legal advice before entering into employment agreements and give them sufficient time to do so;
Maintain all key communications during any negotiations with potential employees and, where applicable, their legal representatives; and
Seek legal advice when crafting termination provisions to ensure they are enforceable.
Our team is experienced in drafting termination provisions and can assist you as required. Email us at info@goulartlawyers.ca to sign up for our regular newsletter.
