- Ontario court holds that employment termination provisions must strictly comply with the ESA’s minimum standards; not be ambiguous and clearly articulate everything the employee will be entitled to upon the termination; and not be made contingent on something that conflicts with the ESA’s minimum standards.
- Court finds a savings clause will not entitle employers to contract out of the ESA’s minimum standards and cannot reconcile a provision that is in direct conflict with the ESA from the outset.
- Court makes $10,000 punitive damages award finding the employer’s “conduct was a marked departure from ordinary standards of decent behaviour and sufficiently reprehensible to merit” it.
Wilds v. 1959612 Ontario Inc., 2024 ONSC 3452, involves a wrongful dismissal action in which the employee brought a motion for summary judgment. The court found the termination provisions in her employment agreement were unenforceable because they violated the Employment Standards Act, 2000 (ESA) and awarded her two months’ damages in lieu of reasonable notice. The court also awarded the employee punitive damages due to its finding that the employer conducted itself in a “reprehensible” manner upon her termination. The court did, however, dismiss her claim for damages for mental distress because the employee failed to describe how the employer’s conduct caused her mental distress.
Background
The employee worked for the employer for 4.5 months as an executive assistant when, at age 52, her employment was terminated without cause during the pandemic.
The employee’s employment agreement contained:
- a termination without cause provision that limited her to her minimum entitlements under the ESA plus two weeks’ notice or pay in lieu of notice, in exchange for her execution of a release of the employer from any and all claims relating to her employment with the employer or the termination thereof;
- a termination with cause provision that permitted the employer to terminate her without notice in 12 different circumstances, subject to any notice, pay in lieu of notice, or severance required under the ESA; and
- a provision that provided that if the employee’s entitlements under the ESA were greater than her entitlements under her employment contract, the contract would be overridden by the ESA (i.e., a savings provision).
When the employee refused to execute the release upon the termination of her employment, the employer refused to pay her any termination pay, including her minimum entitlements under the ESA. The employer also failed to reimburse the employee for legitimate business expenses she incurred while employed; issued her Record of Employment (ROE) one month after the termination of her employment; and did not provide the employee with a letter of reference or a letter confirming her employment.
Employee’s Claim
The employee claimed that although her employment agreement contained a provision limiting the employer’s obligations on termination, it was void because it violated the ESA. She sought, among other things:
- Damages for wrongful dismissal in the amount of $25,000 (representing lost earnings, value of lost bonus entitlements, and employment-related benefits over a five-month reasonable notice period, i.e., more than her actual period of employment);
- Reimbursement of business expenses she incurred prior to the termination of her employment; and
- Aggravated, mental distress, moral, and/or punitive damages in the amount of $25,000 for the employer’s alleged high-handed, oppressive, and wrongful conduct.
Decision
Unenforceability of Termination Provisions
For the following reasons, the court held that both termination provisions in the employment agreement, read as a whole, violated the ESA and were unenforceable:
Termination without cause provision
The termination without cause provision breached the ESA by:
- Providing that if pay in lieu of notice is provided, the employee “will receive only [her] base salary and employment-related health and dental benefits for the applicable period.” This provision did not include vacation pay, bonus and the other benefits the employee was entitled to under the employment contract, such as life insurance and accidental death and dismemberment insurance;1 and
- Making the employer’s obligation to provide the ESA entitlements contingent on the execution of a release.2
Termination with cause provision
The court found the termination with cause provision contained categories of “just cause” for termination without notice that did not comply with the requirement for deliberate conduct in Termination and Severance of Employment, O Reg 288/01 (Regulation).3 It stated this “flies in the face of the ESA” and creates ambiguity; and when a clause is ambiguous, it must be resolved in favor of the employee by finding the termination with cause provision violates the ESA.
Savings Clause
The employment agreement’s savings clause provided that, while the intention of the termination provisions was to include any entitlement the employee had under the ESA, if the employee’s statutory entitlements exceeded her entitlements under her employment contract, the ESA would override the contract.
The court found, at a minimum, that the language of this savings clause created ambiguity for an employee; its wording was unclear and did not allow an employee to know at the beginning of their employment what their entitlement would be at the end of their employment. The court held further:
… “saving provisions” in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards, and cannot reconcile a provision that is in direct conflict with the ESA from the outset.
Mental Distress & Punitive Damages
The court found no merit in the employee’s claim for mental distress damages because she failed to describe how the employer’s conduct caused her any mental distress; however, the court awarded the employee $10,000 in punitive damages, finding the employer’s “conduct was a marked departure from ordinary standards of decent behaviour and sufficiently reprehensible to merit” it. The court noted the employer “committed flagrant breaches of the minimum statutory employment standards in Ontario” when it failed to pay the employee’s minimum entitlements under the ESA, issued her ROE late, and failed to reimburse the employee for legitimate business expenses she incurred while employed. The court expressly stated that it wished to deter the employer and other employers from conducting themselves in this manner in the future, and “mark the community’s collective condemnation of what happened.” Furthermore, in making the punitive damages award, the court emphasized:
…the vulnerable position of dismissed employees, the remedial and protective policy reflected in the ESA, and the need for employers to comply with their legal obligations in situations of power imbalance.
Bottom Line for Employers
This decision reinforces two significant realities of which employers should be aware. The first is that termination provisions in employment agreements should:
- strictly comply with the ESA’s minimum standards;
- be drafted without ambiguity and clearly articulate everything the employee will be entitled to upon the termination of their employment; and
- not be made contingent on something that conflicts with the ESA’s minimum standards.
Furthermore, a savings clause in an employment agreement will not entitle employers to contract out of the ESA’s minimum standards and cannot reconcile a provision that is in direct conflict with the ESA from the outset.
Employers should remember that a carefully drafted termination provision can reduce their financial liability upon the termination of an employee’s employment.
The second reality reinforced by this decision is that courts will carefully evaluate the conduct of employers both at the time of and in the period following an employee’s termination. If a court finds an employer’s conduct at these times reprehensible, it may award the employee a significant punitive damage award. To avoid such liability, employers are encouraged conduct themselves in a decent and appropriate manner during the dismissal of their employees and thereafter.
Footnotes
1 The court noted that s. 60 of the ESA provides an employer cannot reduce wages or alter any other term or condition of employment during the notice period. Employees are entitled to their regular wages and the continuation of all employee benefits; and s. 61 of the ESA establishes where an employee is provided with termination pay in lieu of notice, they must receive all entitlements required by s. 60, which includes all wages and benefits without reduction or alteration.
2 The court noted that s. 54 of the ESA provides that when an employee has been employed for three months or more the employer must not terminate the employee’s employment unless it has (a) given the employee written notice of termination (in accordance with ss. 57 and 58 of the ESA) and the notice has expired, or (b) complied with s. 61 of the ESA by paying the employee termination pay in a lump sum equal to the amount they would have been entitled to receive had notice been given, and continued to make whatever benefit plan contributions would be required to be made to maintain the benefits the employee would have been entitled to receive if they had continued to be employed during the notice period.
3 Under the Regulation, an employee is not entitled to notice of termination (or pay in lieu thereof) or severance pay where they have been “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”
