In the recent case Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 (CanLII) , the Ontario Court of Appeal determined that any breach of Ontario’s Employment Standards Act, 2000 (ESA) in a termination clause of an employment contract, will render it unenforceable.
The employer, Fred Deeley Imports Ltd. (“Deeley”) hired Ms. Julia Wood (“Wood”) in 2007 for the role of Sales & Event Planner for the organization. Fred Deeley Imports, was the exclusive Canadian distributor for Harley-Davidson motorcycles. Wood had received her employment agreement prior to her start date (though had not signed it until a day after her start date). In August of 2015, Deeley terminated Wood without cause after it sold all of its assets to Harley Davidson. Upon termination, Deeley provided Wood with 13 weeks working notice plus 8 weeks’ pay.
In the employment agreement, Deeley’s termination clause did not clearly indicate that the employer would contribute to Wood’s benefit plan during the notice period. The termination clause would also fail to provide Wood with statutory severance pay.
As a result, Wood brought forward a motion arguing that the termination clause and employment contract were unenforceable. She was seeking 12 months’ pay in lieu of notice.
Main Issue: Did the termination clause contravene the Employment Standards Act?
The Motion Judge upheld the Termination Clause. However, Wood appealed and the Ontario Court of Appeal ruled that the Termination Clause was not enforceable. The Ontario Court of Appeal confirmed that an ESA breach in termination clause of employment contract, renders it unenforceable. The Company could, therefore, not rely on it! Wood was awarded a notice period of 9 months.
Key Takeaways for Employers:
- The ESA is fundamental: Any attempt to contract out of or waive a provision of the ESA is illegal and will render a termination clause unenforceable, even if both parties freely agree to do so.
- Consider using a “saving provision” to ensure compliance with the ESA
- Be Clear and Unambiguous: Employers can only contract out of their obligation to provide reasonable notice of termination if they have done so clearly and unambiguously
- Use clear, plain language in contracts – ambiguity will work in employee’s favour
- Language over Action: Complying with the ESA is not a remedy for deficient clauses.
- In this case, even though the Company actually provided the benefits to Wood during the notice period (i.e. compliance with the ESA) did not change the fact that the termination clause was deficient and unenforceable.
The decision in Wood makes one thing clear: it is crucial to have a well-drafted termination clause in an employment agreement. Employers, an employment agreement could save you significant cost and liability down the road. If your company does not currently have employment agreements in place or if your employment agreements are outdated and in need of review, we are here to help. Contact us today to learn how a proper employment agreement can help you minimize risk (and significant cost) for your company.
To read the full Ontario Court of Appeal decision, click here.
Thank you to Lisa Cavuoti, Legal & HR Assistant for assistance with the research and writing of this article.