On December 19th, 2024, the Court of Appeal for Ontario released its decision in Dufault v Ignace (Township), 2024 ONCA 915 where it upheld the invalidity of a termination clause that defined “cause” more broadly than the “wilful misconduct” threshold under the Employment Standards Act, 2000 (the “ESA”).  In so doing, the Court of Appeal confirmed it would not be revisiting its 2020 decision in Waksdale, but refused to weigh in on the merits of other challenges which were successful at the lower Court.

Background

In this case, the employee had signed a fixed-term agreement, but she was terminated without cause nearly two years before the fixed term expired.  In reliance on the termination clause in the agreement, the employer provided the employee with her full statutory entitlements.  The employee sued for wrongful dismissal and claimed that the termination clause was invalid.  The employee then brought a motion for summary judgment to address the interpretation, and enforceability, of the termination clause.

In February 2024, Justice Pierce of the Superior Court of Justice allowed the motion, and invalidated the termination clause, for three reasons:

1. The clause permitted the employer to terminate the employee’s employment “for cause” without notice. The Court distinguished the common law “for cause” standard from the higher “wilful misconduct” standard applicable under the ESA, and held that since the ESA could still require payment of an employee’s statutory entitlement where an employee is terminated “for cause” that does not amount to “wilful misconduct,” the termination clause had the potential to violate the ESA.
2. The “without cause” termination clause also violated the ESA because it only provided the employee with their “base salary” over the statutory notice period, which was incompatible with the statutory requirement to pay an employee’s “regular wages”.
3. The “without cause” termination clause also violated the ESA because it gave the employer the “sole discretion” to terminate the employee’s employment at any time.  The Court held that because the ESA prohibits an employer from terminating an employee that is returning from leave, or in reprisal for attempting to exercise a right under the ESA, the employer does not have “sole discretion” to terminate.

Relying on the Court of Appeal’s 2020 decision in Waksdale (discussed more here), the lower Court held that any one of these violations was sufficient to give rise to a statutory violation, and thus render the termination clause unenforceable in its entirety.  The employee was awarded $157,071.57 in damages, representing the balance of her fixed term contract, less what she had already been paid.

The employer appealed the decision to the Ontario Court of Appeal.  The appeal was heard on Dec 6 2024 before a 3-judge panel, and the decision was released less than two weeks later, on Dec 19 2024.

Court of Appeal

The Court of Appeal agreed with the lower court that the “for cause” without notice provision violated the ESA. In particular, the Court took issue with the inclusion of “failure to perform services” in the definition of “cause”, and the inclusive language of that same definition, finding that language to incorporate a threshold for “cause” which did not accord with the “wilful misconduct” language under the ESA.  Since the “for cause” language was found to be offside the ESA, and relying on the Court of Appeal’s earlier decision in Waksdale, the Court dismissed the appeal and upheld the original motion decision in favour of the employee.

In reaching its decision, the Court of Appeal specifically noted that the Court had sat a 3-judge panel, rather than the requested 5-judge panel, and accordingly was not prepared to reconsider Waksdale.

The Court also refused to comment on the challenges to the enforceability of the “without cause” portion of the termination provision, since the deficiency with the “for cause” language was determinative of the appeal.  In doing so, the Court of Appeal did not address the other (potentially more interesting) arguments which had been addressed by the original motion judge; including specifically the question of whether an employer having the “sole discretion” to terminate at any time was incompatible with the ESA.

Takeaway

The result in the Dufault appeal is likely unsurprising to most employment lawyers, given the Court of Appeal’s decision in Waksdale, and the specific wording of the termination clause in this case.  Seemingly, only one Superior Court of Justice decision since Waksdale has upheld a termination clause as enforceable (discussed in more detail in a previous In a Flash Article available here).

However, in upholding the lower Court’s decision, the Court of Appeal has again reaffirmed the necessity of carefully drafted termination clauses, and serves as a reminder that an invalid termination clause can result in a significant damages award payable by an employer, especially under a fixed-term employment contract.

Employers are encouraged to regularly have their employment contracts reviewed to ensure they contain appropriate language dealing with entitlements on termination. Due to constant developments in the law, termination clauses once considered enforceable may no longer be providing the intended protections.

If you have any questions about this topic or any other questions relating to workplace law, please do not hesitate to contact a Mathews Dinsdale Lawyer.

The author acknowledges the assistance of Michel Hajjar, an Articling Student, in the firm’s Toronto office.