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Court of Appeal renders ESA clause invalid and awards the remainder of contract for early termination
Covenoho v. Pendylum Inc., 2016 ONSC 4969
In this case, the Plaintiff was hired by the Defendant under a fixed-term agreement for one year. The Defendant is a provider of workforce management systems in Canada to a variety of companies and, as part of its business, it enters into agreements with independent contractors who assist in providing services to the Defendant’s customers. The Plaintiff had been hired to work for the Defendant’s customer, Ceridian Canada Ltd. (“Ceridian”) and commenced working on July 15, 2013.
On September 23, 2013, the Defendant sent an email to the Plaintiff and other staff members stating that Ceridian informed the Defendant that they now required Education and Criminal background checks on all contractors due to the sensitive nature of the client data that was being handled. The Defendant stated that the checks were mandatory and declining to consent to the checks would lead to Ceridian releasing the contractors of their duties.
The Plaintiff refused to provide her consent for the checks on the basis that she could not be terminated for something that was not a condition of her employment when she signed the Agreement. On October 11, 2013, the Defendant sent a letter to the Plaintiff informing her that her contract with the Defendant was terminated effective immediately due to Ceridian’s decision to terminate its contract with the Defendant for her services.
The main legal issue in this case was whether the Plaintiff was entitled to be paid for the remainder of the Agreement.
The Legal Principles
The case references Howard v. Benson Group Inc., 2016 ONCA 129, where the Court of Appeal outlined the applicable legal principles:
20 There is a common law presumption that every employment contract includes an implied term that an employer must provide reasonable notice to an employee prior to the termination of employment. Absent an agreement to the contrary, an employee is entitled to common law damages as a result of the breach of that implied term … This presumption can only be rebutted if the employment contract “clearly specifies some other period of notice, whether expressly or impliedly” …
21 … Where an employment agreement states unambiguously that the employment is for a fixed term, the employment relationship automatically terminates at the end of the term without any obligation on the employer to provide notice or payment in lieu of notice. Such a provision, if stated unambiguously, will oust the implied term that reasonable notice must be given for termination without cause …
22 Of course, parties to a fixed term employment contract can specifically provide for early termination and, as in Bowes, specify a fixed term of notice or payment in lieu. However, and on this point the appellant and the respondent agree, if the parties to a fixed term employment contract do not specify a pre-determined notice period, an employee is entitled on early termination to the wages the employee would have received to the end of the term …
29 The respondent sought to use a fixed term contract either to eliminate its severance obligation entirely or to limit it to two weeks’ notice on an early termination. It was, of course, free to do this. But the courts have consistently held that the consequences to an employee of such a bargain are so significant that the employer must communicate clearly in the contract that this is what it is intending to do … If an employer does not use unequivocal, clear language and instead drafts an ambiguous or vague termination clause that is later found to be unenforceable, it cannot complain when it is held to the remaining terms of the contract. [Emphasis added.]
In short, in the absence of a valid termination clause and in the event of early termination, fixed term employees are entitled to the compensation they would have earned if the contract had been completed.
The Agreement between the Plaintiff and the Defendant states:
2.1 The term of this Agreement will commence on the date of this Agreement and will continue in full force and effect unless the Agreement is terminated as follows:
(a) immediately by PENDYLUM providing written notice to you if you violate or fail to honor any of these provisions of this Agreement or fail to perform your duties as set out in Appendix A in a satisfactory manner as determined by PENDYLUM (known as Cause); or if the PENDYLUM Client to which you have been contracted terminate[s] its contract with PENDYLUM for your services; OR
(b) by either party providing written notice of at least two (2) weeks to the other.
2.2 In the event of termination, we will have no liability to you, save and except to pay any accrued and earned compensation up to and including the date of termination.
2.3 Upon termination or expiration of the agreement, you agree to return and/or destroy all confidential information and copies and sign an undertaking that all Confidential Information has been returned and/or destroyed. [Emphasis added]
After considering the facts of the case, Justice Faieta held that the language of the early termination provisions found in Article 2.1 were clear and unequivocal and that the Defendant’s letter dated October 11, 2013 informing the Plaintiff of her termination provided the notice required by the Agreement to immediately terminate the Agreement.
Covenoho v. Pendylum Inc., 2017 ONCA 284
However, the motion judge’s decision was appealed. The Plaintiff’s main ground of appeal was that the motion judge made an error in dismissing her action on the basis that her employer was entitled to terminate her under Article 2 of her employment contract. On appeal, the Plaintiff argued that Article 2 is void and unenforceable because it is contrary to the provisions of the ESA.
The Court of Appeal agreed with this submission. The Court found that the provisions found in Article 2 were contrary to the ESA in that they would have allowed the Defendant to terminate the Plaintiff without cause, by providing less than the statutory minimum notice period, if the Plaintiff had been continuously employed for more than three months. At paragraph 7 the Court states:
In determining whether the contract is in compliance with the ESA, the terms must be construed as if the appellant had continued to be employed beyond three months; if a provision’s application potentially violates the ESA at any date after hiring, it is void.
Following the decision of Howard v. Benson, the Court of Appeal found that in the absence of an enforceable contractual provision, the Plaintiff was entitled to damages equivalent to her salary for the remainder of the unexpired term of the contract, without deduction for mitigation.
The case highlights that fixed-term contracts require clear and unequivocal termination provisions in order for employers not to be held liable for early termination damages. It also highlights that revisions to contracts can be made as long as the employer provides sufficient notice of any changes. It is important to keep in mind that each situation has different facts which can lead to different outcomes.
Analyzing contracts can be complicated for both employees and employers, it is best to talk to a lawyer specializing in Employment Law. Please contact Monkhouse Law today at (416) 907-9249 for a free consultation.
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