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Court Of Appeal: Subjective Considerations Cannot Override The Plain Language Of A Termination Provision – Unfair/ Wrongful Dismissal



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In a decision released on June 8, 2022, the
Court of Appeal for Ontario overturned the motion judge’s
decision in Rahman v. Cannon Design Architecture Inc.,
2021 ONSC 5961, a case we blogged on last year (read our previous
blog here). The motion judge’s
decision in Rahman was significant because it
distinguished one of the most hotly-debated recent cases – the
Ontario Court of Appeal’s decision in Waksdale v Swegon
North America
– finding that a provision of the employment
agreement which denied entitlements upon termination for just cause
did not amount to an attempt to contract out of the Employment
Standards Act, 2000
(ESA). The motion judge reached this
decision based on a finding that the employer and employee had
equal bargaining power in negotiating the employment agreement and
that they had mutual intention not to contract out of the ESA.

Facts

To recap, the employee worked for the Company as a Senior
Architect, Principal and Office Leader for over four years. She was
terminated without cause and was provided with four weeks’
salary as pay in lieu of notice. The employee commenced a wrongful
dismissal action and subsequently moved for summary judgement
asking the court to declare: (1) the ‘just cause’
termination provisions in her employment contracts were void
because they conflicted with the Employment Standards Act,
2000, S.O. 2000, c. 41; and (2) that the defendant’s in the
action were her common employers.

The motion judge determined that the termination provisions in
the employee’s employment contracts (there were two) complied
with the ESA and governed the employee’s termination. In doing
so, he rejected the employee’s submission that the termination
‘for cause’ provisions violated the ESA because: the
employee had received independent legal advice about the offer of
employment regarding her rights at common law and under the ESA in
relation to the possible termination of her employment; the
employee was a “woman of experience and sophistication”;
and, the parties’ subjective intention was to comply with the
ESA minimum standards.

The motion judge also concluded that the employee was employed
by Cannon Design Architecture Inc. (CDAI) and dismissed the action
as against Cannon Design Ltd. and the Cannon Corporation because
CDAI was “the entity that offered her employment and the one
that paid her”.

Court of Appeal Decision

The Court of Appeal for Ontario determined that the motion
judged erred by concluding: (1) the termination provisions of the
employment contracts governed the employee’s termination
entitlements; and, (2) the Respondents were not the employee’s
common employers.

Most significantly, on the issue regarding the termination
provisions, the Court of Appeal wrote:

[24] In my view,
the motion judge erred in law when he allowed considerations of Ms.
Rahman’s sophistication and access to independent legal advice,
coupled with the parties’ subjective intention to not
contravene the ESA, to override the plain language in the
termination provisions in the Employment Contracts. By allowing
subjective considerations to distort and override the wording of
those provisions, the motion judge committed an extricable error of
law reviewable on a correctness standard: Amberber v. IBM Canada
Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at para. 65. It is the
wording of a termination provision which determines whether it
contravenes the ESA – even compliance with ESA obligations on
termination does not have the effect of saving a termination
provision that violates the ESA: Wood v. Fred Deeley Imports Ltd.,
2017 ONCA 158, 134 O.R. (3d) 481, at paras. 43-44.

Furthermore, in accordance with its decision in
Wakesdale, the Court of Appeal wrote that
ESA notice and termination pay must be given for all
terminations, even those for just cause, except for ‘prescribed
employees’: ESA, s. 55. The disentitlement provision
is found in the ESA regulation Termination and
Severance of Employment
, O. Reg. 288/01. Section 2(1) of the
regulation provides:


2. (1) The following employees are prescribed for
the purposes of section 55 of the Act as employees who are not
entitled to notice of termination or termination pay under Part XV
of the Act:

.

3. An employee
who has been guilty of wilful misconduct, disobedience or wilful
neglect of duty that is not trivial and has not been condoned by
the employer (para 27).

The termination provision at issue in this case stated that no
notice or payment will be given if there is just cause to
terminate. However, there was nothing in the termination provision
that limited its scope to just cause terminations for wilful
misconduct. Consequently, the termination provision did not give
the company the right to terminate the employee’s employment
without notice or payment for conduct that constitutes just cause
alone (para 29).

The Court reiterated “. that if a termination provision in
an employment contract violates the ESA – such as a “no notice
if just cause” provision – all the termination provisions in
the contract are invalid” (para 30). As a result, like in
Wakesdale, the Court concluded that the entire termination
provision was unenforceable even though the employer had not
purported to terminate the employee for just cause. The Court
remitted the action back to the Superior Court to determine the
quantification of damages for failure to provide reasonable
notice.

Takeaway for Employers

This case serves as an important reminder for employers that the
surrounding circumstances and subjective intentions cannot override
the plain language contained in the termination provision of an
employment contract. The Court of Appeal’s decision in
Waksdale v Swegon North America has rendered many
previously well-drafted termination provisions unenforceable.
Accordingly, it is essential for employers to update their
employment contracts to ensure that their termination provisions
are valid and enforceable.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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