In Lamontagne v. J.L. Richards & Associates (“Lamontagne”), the Court found the employer’s termination clause was unenforceable because its usage of “for cause” and “without cause” language did not adhere to Ontario’s Employment Standards Act, 2000 (“ESA”). Given the COVID-19 pandemic and resulting economic circumstances, the employee with 6 years seniority, was awarded 10 months’ reasonable notice, as well as benefits and bonus.
The employee, Ms. Lamontagne, worked for the employer for over 6 years. She was hired as an assistant controller and progressed to the controller, overseeing a staff of eight. The employer terminated the employee without asserting just cause when she was 36 years old.
The employer had a standard employment contract that limited employee entitlements upon termination. In part, it stated that:
- An employee has no entitlement to common law notice of termination;
- The “minimum period of notice or pay in lieu of notice” under the Employment Standards Act, 2000 would constitute the employee’s “complete entitlement” to notice of termination; and
- Employment “may be terminated for cause at any time, without notice”.
Relying on the termination clause, the company provided the employee with only her statutory minimum payments as prescribed by the ESA. The employee argued that the termination language was deficient and sought her full common law entitlements upon termination. The Court had to determine whether the termination clause in the employment agreement was valid and enforceable.
Ontario Superior Court found “Cause” to be the Same as “Just Cause” in Termination Clause
Under the ESA Regulations, an employee may be terminated for cause and thus owed nothing by the employer if they have been “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” By contrast under the judge-made common law, an employee may be terminated for cause if they were reckless in neglecting their duties and thus repudiated the employment contract. Practically, as confirmed by the Ontario Superior Court in Oosterbosch v FAG Aerospace Inc., an employee may be entitled to ESA severance pay even when they are terminated for common law just cause.
Often employment contracts will provide that the employer may terminate the employee for cause for reasons other than those specifically provided by the ESA Regulation. In those circumstances, the contractual termination clauses may be invalid in their entirety regardless of whether the employee was terminated for or without cause. The use of the term “just cause” instead of the definition of wilful misconduct under the ESA has been found to invalidate the entire termination clause in recent Ontario Court of Appeal decision Waksdale v. Swegon North America Inc. (“Waksdale”).
In Lamontagne, the employer tried to distinguish the case from Waksdale by arguing that their termination language only said “cause” and not “just cause “.
The Court did not buy it. It found that the “for cause” language disentitled the employee from notice on the basis of “just cause” at common law, and not the more stringent threshold of just cause provided by the ESA Regulation. The Court interpreted this as an attempt by the employer to contract out of the minimum standards of the ESA, which would allow the employee to be terminated without any notice for conduct that is not ‘willful’ or ‘bad on purpose’.”
Therefore, the Court held that the “for cause” clause violated the ESA and the entire termination clause was invalid.
“Without Cause” language disentitling employee to benefits was found unenforceable
In addition to “for cause”, the Court in Lamontagne also found that the “without cause” language in the termination clause breached the ESA. Specifically, the Court took issue with the following sentence in the termination clause:
The minimum period of notice or pay in lieu thereof specified in the Act will be provided and will constitute your complete entitlement to notice or pay in lieu thereof.
While the absence of language addressing benefits and bonuses during the notice period is not necessarily fatal to a termination clause, the above sentence limited the employee’s entitlements upon termination without cause to only “the minimum period of notice” or pay in lieu. Such language tried to circumvent the employee’s entitlement to all elements of compensation owing to her as per her employment contract, which provided for various additional benefits including extended health benefits, vacation, pension plan contributions, and bonuses.
Increased Severance Awarded as a Result of the Covid-19 Pandemic
In assessing the reasonable notice period, the Court considered the employee’s senior position and considerable responsibility. Following the decision in Yee v. Hudson’s Bay Co., the Court also took into account the economic uncertainty arising from the COVID-19 pandemic. The Court awarded the employee common law notice equal to 10 months’ salary, as well as her associate allowance, pension, bonus, overtime, benefits, 50% of her professional dues, and 50% of the cost of the laptop she was required to purchase when the company’s property was returned upon termination.
Takeaway for Employees
This decision is another example of the recent trend of Ontario courts refusing to enforce termination clauses if one component does not comply with employment standards legislation.
A case like this demonstrates how important it is for terminated employees to seek legal advice upon termination. Employers may attempt to rely on a termination clause to limit employees’ entitlements, but often these provisions may not hold up in court.
The employment lawyers at Monkhouse Law are experienced in tirelessly advocating for our clients and obtaining favourable results. If you have questions about what to do upon termination, contact us as soon as possible to discuss your rights and potential options moving forward.
Call Monkhouse Employment Lawyers at 416-907-9249 or fill out this quick form for a free phone consultation.