The Ontario Divisional Court recently dismissed the employer’s appeal in Lamontagne v JL Richards & Associates Limited (Lamontagne)[1], adding an appellate lens to the body of case law addressing the enforceability of “for cause” termination provisions in employment contracts.[2]
In Lamontagne, the employer terminated the applicant’s employment without cause after 6.25 years. The applicable employment contract indicated that employment could be terminated “for cause”, without notice. The employment contract also provided for termination without cause, in which case the contract provided for notice of termination, or pay in lieu of notice, and severance pay.
On appeal, the Divisional Court upheld the decision of the Superior Court of Justice, which concluded that both the “for cause” and “without cause” aspects of the termination provision were unenforceable because they contravened the Employment Standards Act, 2000 (ESA). Accordingly, the employee was entitled to common law reasonable notice.
For cause termination provision
The Divisional Court affirmed that the ESA allows for dismissal without notice only where an employee engages in “wilful misconduct”, as defined under the ESA. The Divisional Court held that the termination “for cause” provision in this case encompassed the common law concept of “just cause”, which is a lower standard than the standard of “wilful misconduct” under the ESA. As such, the Divisional Court agreed with the application judge that the “for cause” termination provision contravened the ESA.
Applying the reasoning of the Ontario Court of Appeal in Waksdale v Swegon North America Inc.,[3] which we discussed in an earlier publication, the Divisional Court affirmed that the unenforceability of the “for cause” aspect of the termination clause rendered the entire termination clause void, including the “without cause” provision.
Without cause termination provision
Given the conclusion that the “for cause” termination provision was unenforceable and rendered the entire termination clause void, the Divisional Court noted that there was no need to address the enforceability of the “without cause” aspect of the termination clause. However, the Divisional Court did so anyway and upheld the application judge’s conclusion that the “without cause” portion of the employment contract was also unenforceable, because it failed to provide for the payment of benefits and bonuses during the notice period.
Bottom line
We anticipate that employer counsel will zealously challenge the reasoning in Lamontagne in subsequent cases, and we have yet to see this issue squarely determined by the Ontario Court of Appeal. In the interim, the Divisional Court’s decision may render broad “for cause” termination provisions vulnerable to attack on the basis that they contravene the ESA, with the ensuing risk that the unenforceable “for cause” termination provision taints the “without cause” provision such that it is similarly unenforceable. Each case will turn on its own facts and the wording of the particular contractual language at issue. However, in any event, employers would be wise to review their existing contracts in order to anticipate any potential claims.
[1] Lamontagne v JL Richards & Associates Limited, 2021 ONSC 8049 (Ont Div Ct).
[2] The Divisional Court had jurisdiction over the appeal because the Order under appeal involved an award of damages of less than $50,000, which is within the Divisional Court’s jurisdiction pursuant to section 19(1.2) of the Courts of Justice Act.
[3] Waksdale v Swegon North America Inc., 2020 ONCA 391.
