Employment contracts are essential for protecting the rights and duties of employer and the employee. The legal consequences can be quite serious if the contract is poorly drafted. Therefore, it is highly recommended to draft a comprehensive and well-articulated contract in order to avoid legal costs that might come up in case of a dispute.
Typically, the disputes occur over the termination clauses and alternative dispute resolution clauses present in a contract.
In today’s blog post, the case of Tarras v. The Municipal Infrastructure Group Ltd. (TMIG) will be discussed where the employer itself had drafted his employment contract and the issue revolved around the enforceability of the termination clause of the contract.
In Tarras v. The Municipal Infrastructure Group Ltd., the motion was brought for breach of contract/unlawful termination by the employer. The employee was the director of TMIG. The employee along with other directors had invested his share in the company. A fixed-term employment agreement was created between the employer and employee which was supposed to last until December 2020.
However, the employer terminated the employee in November 2020 without cause. Now, the major issue was whether the termination clause of the agreement enforceable or not. Also, the parties agreed to proceed by way of summary judgement as the facts of the case were not in dispute and the matter was predominantly related to the enforceability of the termination clause.
The summary judgement declared the termination clause of the employment contract was not enforceable. In order to understand why the termination clause was not enforceable, it is essential to look at section 11 of the employment agreement.
Termination Clause Of The Employment Agreement Of TMIG
11 (a) Termination for Cause. TMIG may terminate Employee’s employment hereunder for “Cause” immediately upon delivery of a written termination notice to Employee. “Cause” means the repeated and demonstrated failure on Employee’s part to perform the material duties of his/her position in a competent manner, which Employee fails to substantially remedy within a reasonable period of time after receiving written warnings and counseling from TMIG; Employee engaging in theft, dishonesty or falsification of records; Employee willful refusal to take reasonable directions after which Employee fails to substantially remedy after receiving written warnings from TMIG; or any act(s) or omission(s) that would amount to Cause at common law. In the event that Employee’s employment hereunder is terminated pursuant to the provisions of section 11 (a), Employee shall not receive payment of any kind, including notice of termination or payment in lieu thereof, or severance pay, if applicable, save and except accrued and outstanding salary and vacation pay.[1]
(b) Termination Without Cause. TMIG may terminate Employee’s employment in its sole discretion for any reason whatsoever without Cause or upon expiry of the Term, by providing Employee with notice of termination, or payment in lieu thereof, or a combination of both, and severance pay, if applicable, pursuant to the Ontario Employment Standards Act, 2000. In addition, TMIG will continue to pay its share of employees benefits, if any, for the duration of the notice of termination., pursuant to the employment standards act of 2000. TMIG will also provide Employee any accrued and outstanding salary and vacation pay.[2]
Employers Cannot Contract Out Of The Standards Set By The ESA
It is pertinent to note that standard of termination mentioned under section 11(a) of the TMIG agreement is not in compliance with the Employment Standards Act, 2000 (“the ESA”). Section 5 of the ESA elaborates that “no employee or agent of an employer and no employee or agent of an employee shall contract out of or waive any employment standard and any such contracting out or waiver is void.”[3]
The court also relied on Waksdale v. Swegon North America Inc. in which the Ontario Court of Appeal discussed that the best way to decide whether termination clause violate the ESA is to read the termination provisions in an employment agreement as a whole. The court ruled that rights-restricting employment contracts can be enforceable only when the termination clauses of the contract are not illegal.
In light of the inherent power, imbalance between employees and employers as well as the remedies provided under the ESA, the courts should concentrate on determining whether the employer violated the employee’s ESA rights by limiting the employee’s common law rights upon termination.[4]
Moreover, depriving employees of the recognized employment benefits is considered a breach of the ESA except pursuant to sections 2(1) and 9(1) of the Termination and Severance of Employment, Ontario Regulation 288/01. Section 2(1) and 9(1) of the Ontario Regulation 288/0, sets out a list of employees who have no entitlement to statutory employment mandated benefits and both sections mentions “an “employee who has been guilty of willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer.”[5]
[1] Tarras v. The Municipal Infrastructure Group Ltd., 2022 ONSC 4522 (CanLII), at para 16
[2] Ibid
[3] Employment Standards Act, 2000, SO 2000, c 41, s 5
[4] Waksdale v. Swegon North America Inc., 2020 ONCA 391 (CanLII), at para 10
[5] Tarras v. The Municipal Infrastructure Group Ltd., 2022 ONSC 4522 (CanLII), at para 20
It was analyzed that the ESA’s language was not utilized in section 11(a) of the employment agreement, according to the court, which found phrases like “any acts or omissions that would amount to cause at common law” in its place.
More importantly, it was brought up by the defendant that the defendant was not the sole draftsperson; the employee also contributed to the creation of the employment agreement and also had the benefit of a legal counsel in the negotiation of the agreement. However, the court declared that such choice is integrally subjective and such claim would have sustained if it was a contract dispute considering the fact that power imbalance needs to be minimized and managed whenever possible.
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