A recent Ontario Superior Court case has again highlighted potential risks to employers who use overly broad language in employment contracts, particularly when it comes to termination clauses.
In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the court found language outlined in the employment contract’s termination clause rendered the entire clause unenforceable because this language breached the Ontario Employment Standards Act (Ontario ESA). As a result, an employee was awarded damages of more than $150,000.00 from the without-cause termination of their employment – a far cry from the approximately $3,000.00 that the employer expected it had to pay.
On the surface, this finding should not come as any great surprise given the trend in Ontario in recent years. Since the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America Inc., decisions have abounded in which Ontario courts have been willing to invalidate termination clauses for what appear to be minor drafting deficiencies.
The Dufault decision references a number of familiar reasons to invalidate termination provisions – notably a defective “just cause” provision (a problem that generally only arises in Ontario due to the unique language of the Ontario ESA) and because the contract purported to limit the employee to base salary during the statutory notice period.
Remarkably, the Court located another problem with the termination clause in question – specifically language permitting the employer “sole discretion” to terminate the employee’s employment without cause “at any time”. The Court reasoned that by providing this broad discretion to terminate, the provision breached parts of the Ontario ESA
This final aspect of the decision is already creating waves in the Ontario employment bar with many prominent lawyers expressing strong disagreement in regard to the reasoning. It may be that the decision will be appealed and it is unclear if the “at any time / sole discretion” reasoning will in and of itself be deemed sufficient to invalidate otherwise enforceable clauses in Ontario (let alone in BC).
That being said, the Dufault has and should raise eyebrows amongst employers across the country. In my experience, this type of “at any time / sole discretion” language is extremely common in Canadian employment contracts. Employers in BC and elsewhere would be wise to consider the potential impact of this case on their own employment contracts.
While Dufault does (again) raise major issues for Ontario employers in relation to their termination clauses, the potential impact on BC employers is less apparent. BC courts have consistently interpreted termination clauses through a broader lens that is more employer-friendly. This has been the case even in circumstances involving a clause that limits the employee to the minimum notice or pay in lieu of notice as set out in B.C.’s Employment Standards Act.
Despite this potentially more generous interpretation of termination provisions, BC employers should nonetheless be wary and avoid the inclusion of arguably problematic language in key employment clauses. Less is often more in these matters. And it is important that employers ensure their employment contracts are regularly reviewed by a trusted legal partner, so the contracts can be updated to reflect the evolving legal and judicial landscape.
Moreover, as a lawyer that maintains an active practice in both BC and Ontario and regularly advises employers in both provinces, I am extremely familiar with the confusion and frustration that can arise when employment contracts or policies have been drafted with one jurisdiction in mind then blindly implemented for use in other jurisdictions. For that reason, we strongly recommend that employers operating in multiple jurisdictions ensure their employment document language is tailored to the appropriate jurisdiction and the employer’s risk profile.
For more information or advice about employment contracts in BC or Ontario, please contact Matthew E. McCarthy of Boughton Law’s Employment Group.