Fixed Terms, Flawed clauses and why employers don’t have sole discretion to terminate at any time.
Navigating the intricacies of Ontario employment law can often feel like a minefield. Recent cases have illuminated the complexities and nuances surrounding fixed term employment agreements and some of the risks for employers inherent in them.
Dufault v. The Corporation of the Township of Ignace
The most recent journey involved the case of Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029. Picture this: hired on Halloween day, promoted to a new fixed-term role as Youth Engagement Coordinator, and then, abruptly terminated just two months later.
Dufault’s termination just two months into the fixed-term contract raised questions about the validity of the termination clause. It is well established law in Ontario that an employee with a fixed-term contract is entitled to be paid to the end of that fixed term unless the contract provides otherwise in an enforceable termination clause. It is also well established that a contract with a termination clause which violates the Ontario Employment Standards Act, 2000 (ESA) in any way will be held to be entirely void.
Dufault challenged the validity of the termination clause in the contract on several fronts. Because she was successful.
The novel violation
The contract’s termination clause stated “The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows…” (emphasis added)
Dufault argued that the contract misstated the ESA by purporting to give the employer the right to have “sole discretion” to terminate the plaintiff’s employment “at any time,” when the ESA prohibits the employer from doing so in certain circumstances. The court agreed stating, at paragraph 45, “I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee’s leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute.”
Other ESA violations
The contract also contained several other ESA violations:
- it purported to limit Dufault’s pay entitlement upon termination based on base pay rather than regular wages, therefore not including items such as vacation pay, in violation of the ESA.
- it stated that the employer could “terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause” and pay the employee nothing. It’s well established in case law that this clause violates the ESA minimum payment requirements.
Implications of Violations
Because the court ruled that the termination clause in the employment contract violated the ESA, it was struck down in its entirety and Dufault was awarded the value of her regular wages for the 22 months until the end of the fixed term notice period with no duty to mitigate.
Commentary
This case once again underscores the importance of ensuring termination clauses adhere to ESA minimum requirements and for employers to carefully consider whether to use fixed-terms when hiring employees. It also gives employees a new basis to challenge the enforceability of their termination clauses.
As legal boundaries continue to evolve, staying abreast of recent cases is paramount for anyone traversing the maze of employment law. So, whether you're an employer drafting contracts or an employee signing on the dotted line, remember: the devil lies in the details.
About the author
Robert Richler, a partner at Bernardi Human Resource Law LLP, leads the firm's employment law team. In addition to practicing employment and labour law, Rob conducts workplace investigations and performs HR training for employers. Rob frequently advises organizations on responsible AI integration in their businesses and has been a frequent presenter on the subject. He has represented clients at all levels of court in Ontario.
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