Hold On for Dear Life: There Is No Meaningful Lifeline for Ontario Employers
We’ve never been under any illusions – employers in Canada don’t have an easy time when they land themselves before our courts. Nowhere is that clearer than in the Ontario courts. Cue the judgment of the court in Baker v. Van Dolder’s Home Team Inc.
The termination provision at issue is the following [my emphasis]:
Termination without cause: We may terminate your employment at any time, without just cause, upon providing you with only the minimum notice, or payment in lieu of notice and, if applicable, severance pay, required by the Employment Standards Act…
Baker relied on the decision in Dufault v. The Corporation of the Township of Ignace, specifically the following statement [also my emphasis]:
[46] Thirdly, the plaintiff submits that Article 4.02 misstates the ESA when it gives the employer “sole discretion” to terminate the employee’s employment at any time. I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee’s leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute.
On this basis, the judge in Baker draws the following conclusion:
[10] On the authority of Dufault, the plaintiff’s “without cause” termination provision is unenforceable, as the ESA does not permit an employer to terminate employment “at any time”. An incorrect statement as to the ESA is not saved by general language stating that the employer will comply with the ESA.
[…]
[12] I must apply Dufault, as none of the reasons to depart from a prior decision referenced in Spruce Mills are applicable. As such, the “without cause” termination provision is unenforceable.
Except that’s not what Dufault says and it remains my contention that the case was wrongly decided for two reasons:
It inaccurately states the basis on which the provision in Dufault was decided; and
It fails to correctly apply the rules of contractual interpretation.
The Truth of Dufault
The clue is right in the quote relied on in Baker: “sole discretion”. The quotation marks are there in the original - no embellishment! By necessary implication (how else does one read those quotes?), the question at issue in Dufault was whether the employer could terminate employment at any time at its “sole discretion”. It’s helpful to remember here what sole discretion implies: it means that the employer can exercise said discretion absolutely, unfettered by any constraints. The judge in Dufault concludes that since there are in fact legal constraints on an employer’s discretion to terminate, that the clause is illegal. I disagree fundamentally with that conclusion as it eschews modern rules of contractual interpretation – more on that later – but it is what it is.
The point is, however, that in the Baker case, the termination clause did not include the offending language the judge relied on in Dufault – nowhere does it say at the employer’s “sole discretion”. Relying on Dufault to deem the termination provision in Baker illegal is, simply stated, incorrect.
Contractual Interpretation
On the second point, the modern approach to contractual interpretation involves reading the contract as a whole and giving the words their normal and ordinary meaning in line with the surrounding circumstances when the parties made the contract (see Sattva Capital Corp. v. Creston Moly Corp.). Yes, yes, employment contracts are special and subject to greater scrutiny (see Wood v. Fred Deeley Imports Ltd.), but that does not make them unbound from reality and should not lead to absurd results. I contend that to be the case here.
To conclude that the words “at any time” made the contract unenforceable, you would have to necessarily read the words “even when it is illegal to do so” into the contract. Put another way, the provision might have been enforceable if it had instead read “at any legal time”. Are our courts suggesting that we now must explicitly state in our contracts that we will only exercise our rights under the contract in a manner that is compliant with the law? Surely that cannot be the case!
To bolster this last point, I would take a moment to point out that there is ample case law – in the commercial context no less! – that binds parties to a contract to a “duty of honest performance” and requires them to exercise their rights under that contract “in good faith” (see C.M. Callow Inc. v. Zollinger and Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District). If parties to contracts that reserve to one party a right they can exercise in their “absolute”, “sole”, and “unfettered” discretion still implies these obligations, it stands to reason that any discretion a party has under contract must be exercised in a manner compliant with the law without the need of having say so explicitly.
Now What?!
What makes this particularly galling is that we now must contend with this case as binding on other Ontario Courts (see R v. Sullivan and the infamous Spruce Mills test – as an aside, an oldie but a goody from way back in 1954 when appeals could still be disposed of over two pages!). How do we get this fixed? Well, the Ontario Court of Appeal has helpfully told us how to do so in Dufault [again my emphasis]:
[24] As a three-judge panel, we are precluded from reconsidering the holding in Waksdale. Following the holding in Waksdale, because the “for cause” termination clause in the employment contract is void as contrary to the ESA minimum standards, all termination provisions in the contract are invalid: Waksdale, at paras. 9-14; Rahman, at para. 30. Although the termination of the respondent was without cause, whether or not the “without cause” termination provision is itself contrary to the ESA minimum standards is irrelevant. Both termination clauses are invalid and unenforceable.
[25] Given our conclusion that the “for cause” termination clause of the employment contract is unenforceable as contrary to the ESA and that, pursuant to Waksdale, this renders all of the termination provisions unenforceable, it is not necessary to consider the appellant’s arguments that the motion judge erred in finding the “without cause” termination clause also unenforceable as contrary to the ESA, and we expressly do not rule on that submission. The appellant argued that the motion judge’s findings in relation to the “without cause” termination clause may affect other employment contracts. In our view, resolution of the issues the appellant raises regarding the “without cause” termination clause should be left to an appeal where it would directly affect the outcome.
The cost of getting a case through trial and appeal is anywhere between $100,000 and $250,000. This without any certainty (or even confidence!) that you’re likely to be successful because these judgments have gone haywire. Further, the vast majority (there’s no way to know for sure, but my suspicion is that more than 90% of cases) cost less than this amount to settle… well, Court of Appeal, you have unwittingly done what an increasing number of employment lawyers have increasingly started to suspect – termination provisions will never be worth the paper they’re written on. If that’s the case, it would be helpful to just say so and be done with the charade that an enforceable provision can somehow be drafted.
Where Does This Leave Us?
The current situation does no one – not employees, not employers – any favours. It creates enormous amounts of uncertainty and ambiguity in the legal landscape, which leads to more litigation, which is always expensive, time-consuming, and emotionally draining (especially for employees). More litigation is NOT the purpose of judgments of the court. In fact, it’s quite the opposite – judicial pronouncements should create a body of law that provides consistency so that parties to potential litigation (in our case, an employer and a former employee) are relatively confident of the likely outcome of their dispute in the event they were to take it to court, thereby limiting the litigation process for what it was intended: litigants turning to the courts to resolve novel – not absurd! - issues.
Why? So that parties know their rights and obligations, thereby avoiding any need to take the matter to court. This is important for three reasons: (1) our courts are already over-burdened, (2) litigation is expensive (see above), and (3) the only parties that benefit from litigation, especially in the employment context, are lawyers (I’m including mediators in this one). That last one isn’t going to make me popular with my peers, but if we’re being honest, it’s the truth.
