When it comes to assessing the enforceability of a termination clause for sophisticated employees in Ontario, intent matters. In a recent case, Rahman v Cannon Design Architecture[1], the court found the termination clause enforceable in part because the evidence established that, during contract negotiations between the employer and sophisticated employee, there was a mutual intent to comply with the minimum standards of the Employment Standards Act, 2000 (ESA).

Surrounding circumstances

In this case, the senior employee – a principal – was sophisticated. She was terminated without cause after approximately four years of employment. She alleged wrongful dismissal on the basis that the termination provisions of her employment agreement were not consistent with the ESA.

The court dismissed the application, noting that there was an intent to comply with the ESA, and the termination clause itself did not contract out of the legislation. Intent was established because of the following “surrounding circumstances”:

  • First, there was no bargaining power imbalance between the employee and employer during contract negotiations.
  • Second, the employee sought and received independent legal advice during contractual negotiations, and had sufficient time to do so. This resulted in material improvements made to her employment agreement, including to her termination entitlements.
  • Third, for other issues not raised during negotiations, the court noted that the employee nevertheless had the opportunity to have her legal representation voice any objections. In the court’s view, it would have been illogical to infer that counsel failing to address certain points during negotiations could somehow lead to a finding that the termination clause sought to contract out of the ESA’s minimum entitlements upon termination. On this note, the court stated that “perfection is certainly not the standard required of legal advice in this context.”
  • Additionally, the court noted that in practice, the employer’s termination policies and practices did not violate ESA minimum entitlements.
  • Finally, the employment contract contained a “for greater certainty” clause providing that “maximum liability … for common law notice, termination pay, benefits continuation, severance pay, or payment in lieu of notice” was limited to the greater of notice periods required by the agreement or the ESA minimum, depending on whether certain conditions were met. This was found to be enforceable, as the contract contemplated payments no less than the minimum amount required by the ESA.

A cautionary note

Rahman is welcome news for Ontario employers. That said, every case turns on its own facts, and the language of termination clauses inevitably varies between contracts and employers. As a result, while this case may seem like a reprieve for employers, it should be noted that the law in this area is not entirely settled.

For example, in one decision[2] released one month after Rahman, the Ontario court concluded that an employee’s sophistication and retention of independent legal advice did not permit the employer to rely on a termination provision that did not comply with the ESA. In other words, mutual intent to comply with the ESA – by itself –  cannot always save a termination clause depending on the circumstances.[3] When the enforceability of a termination clause is at issue, employers with sophisticated employees would therefore be wise to exercise caution when assessing mutual intent and its surrounding circumstances.

Footnotes

[1] 2021 ONSC 5961.

[2] Steve Livshin v The Clinic Network Canada Inc, 2021 ONSC 6796.

[3] See also: Campbell-Givons v Humber River Hospital, 2021 ONSC 6317.

With thanks to Alexander Carden, articling student, for his assistance in preparing this blog post.

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