Every week, Bell Temple LLP selects and reports on interesting and relevant decisions from the Ontario Superior Court of Justice, Ontario Court of Appeal, and Supreme Court of Canada.
This week’s case reports are written by Joseph Yazdani
Termination provisions in employment contracts are crucial for defining the rights and obligations of both employers and employees. However, these provisions must align with the standards set out under the Employment Standards Act, 2000 (ESA) to be enforceable. Two recent cases—Bertsch v. Datastealth Inc., 2024 ONSC 5593 and De Castro v. Arista Homes Limited, 2024 ONSC 1035—offer contrasting examples of how such provisions can either withstand or fail legal scrutiny.
Bertsch v. Datastealth Inc., 2024 ONSC 5593
This case demonstrates how carefully drafted termination provisions can align with the ESA and withstand judicial scrutiny. The plaintiff, Gavin Bertsch, challenged the enforceability of his employment contract’s termination provisions, claiming they were ambiguous and non-compliant with the ESA. The court, however, upheld the provisions, finding them clear, precise, and fully compliant.
The employment contract limited termination to “wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned,” as defined by Regulation 288/01, Section 2(1)(3) of the ESA. The inclusion of a “failsafe” clause purportedly further strengthened the provisions by ensuring that any entitlement below ESA standards would automatically default to the ESA minimums.
The court emphasized two key reasons for the provisions’ enforceability:
- The termination clause strictly adhered to the ESA’s definition of cause, avoiding any attempt to broaden the grounds for termination.
- The failsafe clause ensured compliance with statutory minimums, eliminating any potential for illegality.
The ruling in Bertsch underscores that clarity, precision, and compliance with the ESA are critical to crafting enforceable termination provisions.
De Castro v. Arista Homes Limited, 2024 ONSC 1035
In contrast, the De Castro v. Arista Homes Limited case highlights the risks of drafting overly broad and non-compliant termination provisions. The plaintiff successfully argued that her employment contract’s termination provisions violated the ESA, rendering them unenforceable.
The employer attempted to define “cause” broadly, stating:
“Cause shall include your involvement in any act or omission which would in law permit ARISTA to, without notice or payment in lieu of notice, terminate your employment.”
This vague definition exceeded the ESA’s strict criteria, which limits cause to “wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned.” Additionally, the inclusion of grounds such as ‘breach of Employment Agreement’ and ‘disobedience’ expanded the scope of termination provisions beyond the narrow and intentional misconduct required under the ESA. The court ruled that the termination provisions were overly broad and non-compliant, entitling the plaintiff to common law reasonable notice.
Takeaways
The contrast between Bertsch and De Castro illustrates the importance of strict adherence to the ESA in drafting termination provisions. In Bertsch, the termination provisions mirrored the ESA’s narrow definition of cause, ensuring clarity and compliance. Additionally, the inclusion of a failsafe clause guaranteed that any ambiguity would not result in a breach of statutory requirements. By contrast, in De Castro, the employer’s broad and ambiguous definitions of cause exceeded the ESA’s standards, expanding the grounds for termination beyond what is permitted and rendering the provisions unenforceable. These cases reinforce that any attempt to broaden termination grounds beyond the ESA’s criteria risks invalidating the entire termination section of a contract.
For employers, it is crucial to ensure that termination provisions are narrowly and specifically drafted to, at minimum, meet the requirements of the ESA. Contracts should use precise language that adheres to applicable common law principles and the ESA’s standards for “termination for cause” without attempting to broaden its scope. By taking these steps, employers can minimize the risk of legal challenges and ensure their contracts withstand judicial scrutiny.
For employees, it is important to be aware of whether their contract contains unenforceable termination provisions, as was the case in De Castro v. Arista Homes Limited, in order to protect their rights. If you require assistance with the review of your employment contract (s) or if you require representation for your wrongful dismissal dispute, please contact our Partners Adrian Serpa and Lora Castellucci for expert guidance.
