Enforceability of Termination Provisions: Rahman Overturned

In early 2021, the Supreme Court of Canada denied leave to appeal the Ontario Court of Appeal decision in Swegon North America Inc. v. Waksdale, 2020 ONCA 391 (“Waksdale”). The Waksdale decision had marked a significant shift in the enforceability of termination provisions in employment contracts. We previously wrote about these developments, the article can be found here.

In summary, the Ontario Court of Appeal found that termination clauses in an employment contract should be read together.  If any part or section of the contract dealing with the individual’s termination entitlements violates the minimum statutory requirements under the Employment Standards Act, 2000 (“ESA”) in any manner, all the termination provisions are rendered unenforceable.

This meant that, for example, a ‘just cause’ termination clause that did not clearly provide for a terminated employee’s minimum ESA entitlements could result in an entirely unenforceable set of termination provisions. This result favoured employees as they could pursue their common law rights in the absence of enforceable language to the contrary. However, this would not be the last time the courts would consider this issue.

Rahman Decision Distinguishes Waksdale

Later the same year that the leave to appeal was denied for Waksdale, the Ontario Superior Court released a decision, Rahman v. Cannon Design Architecture Inc., 2021 ONSC 5961 (“Rahman”), which in-part weighed in on this issue.

Rahman was provided an Officer Agreement and separately an offer letter, both of which addressed termination. However, the offer letter stated that in the event of a conflict between the two, the offer letter would prevail. Rahman’s offer letter contained the following:

CannonDesign maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal.”

Rahman argued that this language violated the ESA as it created the potential to interpret the provision to permit termination without notice even where legislation would not allow it. Citing Waksdale, she asked that the court find the termination provisions as whole as unenforceable. The court disagreed and used a contextual approach to interpreting the intentions of the contract. Rahman was sophisticated, received legal advice, and the parties demonstrated a subjective intention to comply with the ESA. The termination provisions were found to be enforceable.

Court of Appeal Overturns Rahman Decision

Earlier this month the Ontario Court of Appeal (Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451) reviewed the Rahman decision and in-part revisited the Ontario Superior Court Judge’s findings on the enforceability of the termination provisions.

The Court of Appeal adopted a plain reading of the contract and found the termination provisions to “runs afoul” of the ESA. Subjective considerations distorted the wording and the lower court had made an error of law.  The Court of Appeal went on to explain why the language in the offer letter contravened specific sections of the ESA and further referred to Wakesdale in support of its conclusions. Ultimately the termination provisions in this case were void and therefore unenforceable.

Takeaway

When Rahman was first decided there were signals that the Waksdale ruling would not be as impactful as was first thought. However, the Court of Appeal has now provided two recent decisions in which a plain and strict reading of statutory compliance in employment contracts carry the day. Going forward it is likely that employment contracts that do not adequately provide for statutory minimums, use language that is ambiguous, or wording that contradicts minimum standards, will risk invalidating all termination provisions in an employment contract.

Employers will need to take care in drafting contracts for new hires and consider entering into revised agreements with existing employees. A failure to take proactive steps now could result in employees seeking entitlements well above the intended and agreed upon terms governing the end of an employment relationship.

For more information and to discuss how we can help you update your contracts you may email us at info@jpakemploymentlaw.com or contact us here.


Authors: Dilpreet Grewal & Jonquille Pak

By |2022-06-27T16:15:03-04:00June 24th, 2022|Article, Article-All|Comments Off on Enforceability of Termination Provisions: Rahman Overturned

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