The Court of Appeal for Ontario has recently confirmed that if the application of a termination clause potentially violates the Employment Standards Act, 2000, S. O. 2000, c. 41 (“ESA”), the employment contract will be void.
In Covenoho v. Pendylum Ltd., 2017 ONCA 284, the Court of Appeal reversed a decision of the Ontario Superior Court and found in favour of an employee due to a poorly drafted termination clause in her fixed-term employment contract.
In this case, Ms. Covenoho signed a one (1) year fixed-term employment contract. The employment contract contained the following termination clause:
2.1 The term of this Agreement will commence on the date of this Agreement and will continue in full force and effect unless the Agreement is terminated as follows:
(a) immediately by PENDYLUM providing written notice to you if you violate or fail to honor any of these provisions of this Agreement or fail to perform your duties as set out in Appendix A in a satisfactory manner as determined by PENDYLUM (known as Cause); or if the PENDYLUM Client to which you have been contracted terminate[s] its contract with PENDYLUM for your services; OR
(b) by either party providing written notice of at least two (2) weeks to the other.
2.2 In the event of termination, we will have no liability to you, save and except to pay any accrued and earned compensation up to and including the date of termination.
2.3 Upon termination or expiration of the agreement, you agree to return and/or destroy all confidential information and copies and sign an undertaking that all Confidential Information has been returned and/or destroyed.
Ms. Covenoho commenced her employment with Pendylum on July 15, 2013. On October 11, 2013, Pendylum terminated her employment without cause and without providing any notice or payment in lieu of notice. The termination letter read as follows:
Pursuant to paragraph 2.1a) of your Contract Agreement with Pendylum Inc., dated July 10, 2013, and specifically by reason of Pendylum Client Ceridian’s decision to terminate its contract with Pendylum Inc. for your services, we hereby advise you that your contract with Pendylum Inc. is hereby terminated with immediate effect.
Following her termination, Ms. Covenoho sued Pendylum for wrongful dismissal and brought a motion for summary judgment in the Ontario Superior Court of Justice. The motion judge, the Honourable Justice Mario D. Faieta, found that she was not entitled to notice under the ESA because she had been employed for less than three (3) months and she was not entitled to common law notice because it was excluded by the termination clause in her employment agreement. Justice Faieta dismissed Ms. Covenoho’s summary judgment motion, including her claim for bad faith damages for the way in which she was terminated.
Ms. Covenoho appealed the motion judge’s decision. The main ground of appeal was that the motion judge erred in dismissing her summary judgment motion on the basis that Pendylum was entitled to terminate her employment pursuant to Article 2 of the employment contract. More specifically, Ms. Covenoho’s argument was that this article of the employment contract was void because it allowed Pendylum to terminate her employment without cause and without notice or payment in lieu of notice, regardless of her length of service, which is in direct contravention of the termination provisions of the ESA.
On April 5, 2017, the Court of Appeal (Rouleau, Pepall and Roberts JJ.A.) rendered its very short and concise decision, and found in favour of Ms. Covenoho.
The Court of Appeal concluded that the termination provisions contained in Articles 2.1(a) and 2.2 of the employment contract are contrary to sections 54, 57 and 58 of the ESA because they allowed Pendylum to terminate Ms. Covenoho’s employment without cause after three (3) months of service, without providing the statutory minimum notice or payment in lieu of notice prescribed by the ESA. To determine whether an employment contract complies with the ESA, the Court of Appeal specified that “the terms must be construed as if the [employee] had continued to be employed beyond three months; if a provision’s application potentially violates the ESA at any date after hiring; it is void”.
Having concluded that Ms. Covenoho’s employment had not been validly terminated and the employment contract was void, the Court of Appeal found that Ms. Covenoho was entitled to damages equivalent to the amount of salary she would have earned during the remainder of the fixed-term employment contract, without any deduction made for mitigation. This damages award is consistent with the Court of Appeal’s recent decision in Howard v. Benson Group Inc., 2016 ONCA 256, which established that “in the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term and that obligation will not be subject to mitigation”.
The Court of Appeal set aside the motion judge’s decision and cost award, and awarded Ms. Covenoho $56,000 (representing the amount she would have received for the remainder of her contract), as well as pre-judgment and post-judgment interest, and $1, 664 for disbursements. It is also worth noting that there was no costs award for legal fees ordered against Pendylum as Ms. Covenoho was self-represented.
For employees, it is prudent to have a legal professional review any employment contract provided by a potential employer before signing it. Likewise, it is important, and sometimes critical, to seek legal advice and consult a lawyer who specializes in employment law before accepting a termination offer and/or signing any sort of release in favour of an employer.
For employers, given the recent developments in Ontario employment law, it is critical to have a legal professional review and revise your employment contracts to ensure that they comply with the ESA and that there is no risk of invalidation in a court of law.
If you are an employee who requires assistance with the review and/or interpretation of an employment contract at the time of hiring or termination, or if you are an employer in need of assistance with the review and revision of employment contracts, the legal professionals at Lister Beaupré would be pleased to provide you with cost-effective guidance and assistance. Please do not hesitate to contact Samara Belitzky or any other lawyer at Lister Beaupré by calling us at 613-234-2500.
The above-noted content is not intended to be legal advice and should not be taken as such. Professional legal advice should be sought to address specific events and situations.