Jul 21

Unenforceable Termination Clause Can Not Be Overridden by Sophistication, Legal Advice, and Intent to Comply


The Ontario Court of Appeal decision in Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451, overturns a Superior Court decision where it was held that the sophistication of an employee, obtaining legal advice, and both parties intending to comply with the Employment Standards Act (ESA) were sufficient factors to override an otherwise unenforceable termination clause. In reaching this decision, the Ontario Court of Appeal affirmed, once again, that illegal language in a termination clause will remain illegal, no matter the context.

The Facts of this Case

The Plaintiff commenced a wrongful dismissal claim against the Defendant following their termination, without cause. The Plaintiff was 61 years old, was employed by the Defendant for a little over four years and earned $185,000.00 per year.

Prior to commencing employment with the Defendant, the Plaintiff signed an employment agreement that contained a termination clause, the relevant portion of which stated:

Cannon Design maintains the right to terminate your employment at any time and
without notice or payment in lieu thereof, if you engage in conduct that
constitutes just cause for summary dismissal.


[In the event of termination without cause, Cannon Design will provide you with] advance notice and/or applicable payments, benefits continuation, and severance pay if applicable, equivalent to the minimum applicable entitlements contained within the Ontario Employment Standards Act, 2000, as amended, or any applicable successor legislation…[f]or greater certainty, Cannon Design’s maximum liability to you for common law notice, termination pay, benefits continuation, severance pay, or payment in lieu of notice shall be limited to the greater of the notice required in your Officer’s Agreement or the minimum amounts specified in the ESA. The Plaintiff took the position that foregoing termination clause was void and unenforceable for several reasons, such as the fact that the “just cause” termination provision permitted termination without notice in circumstances beyond those permitted by the Employment Standards Agreement, 2000 (“ESA”).

The Lower Court Decision

In rendering his decision, Justice Dunphy ultimately disagreed with the Plaintiff. Justice Dunphy stated that the Plaintiff was, or should have been, well aware of their rights due to the fact that they obtained legal advice prior to entering into the employment agreement. Since the negotiations leading up to the signing of the employment agreement referenced the wording of the termination clause, it was the position of the Court that the lack of revision indicated acquiescence. Moreover, given the material improvement in the termination provision, this further indicated acquiescence.

In addition to the above, the Court indicated that since both parties were “reasonably sophisticated” and there seemed to be an absence of disparity in bargaining power, the Plaintiff could not claim ignorance to the law. Lastly, the Court stated that it was the “mutual intent” of both parties to comply with the ESA.

Justice Dunphy stated that “every contract…must be interpreted with a view to giving expression to the mutual intention of the parties as expressed in the words used by them”. In departing from the direction of the case law that preceded this decision, Justice Dunphy opined that seeking uncertainty in the application of the law to otherwise fairly negotiated contracts would have unintended consequences for employees.

The Ontario Court of Appeal Decision

The Ontario Court of Appeal first addressed the lower court’s view that sophistication and access to independent legal advice, combined with the subjective intention of both parties to not contravene the ESA, would override otherwise unenforceable language in a termination clause. On this point, the Court of Appeal found that Justice Dunphy committed an extricable error of law. It is the language in the termination clause itself that determines whether there is a contravention of the ESA.

In reaching the above determination, the Court of Appeal relied on Waksdale v. Swegon North America Inc., 2020 ONCA 391 (“Waksdale”), stating that if any termination provision in an employment contract violates the ESA, then all the termination provisions in the contract are invalid.

On its face, the language in the Plaintiff’s termination clause failed to limit the scope to just cause terminations for wilful misconduct. By failing to do so, the termination clause created an opportunity for the Defendant to terminate the Plaintiff for just cause and forego paying any statutory entitlements, even if the Plaintiff did not engage in wilful misconduct. As determined in the recent case of Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310, an employee should nevertheless receive their minimum statutory entitlements even if they were terminated for just cause, so long as they did not engage in wilful misconduct.

Given the fact that the language in the Plaintiff’s termination clause did not explicitly outline this distinction, the entire termination clause is deemed void and unenforceable.

Conclusion and Key Takeaways

Following the lower court decision, a defence against wrongful dismissal claims appeared for employers. That being, if the employee (a) had sought prior legal counsel; (b) was a sophisticated party; and/or (c) believed there was a mutual intent to comply with the ESA, the employee cannot then say that the language of the termination clause in their employment agreement is unenforceable.

The Ontario Court of Appeal overturned the decision of the lower court. By doing so, it was once again reaffirmed that if a termination clause in an employment agreement is unenforceable, then it will remain to be, regardless of the sophistication of the party, the legal advice they received, or the contextual factors surrounding the signing of the agreement. In short, yet another decision reaffirmed the precedent set by the Ontario Court of Appeal decision Waksdale.

If you have recently been terminated and believe that your entitlements are being withheld or your rights have been infringed, we highly recommend you contact our office to discuss your options. It is possible that your termination clause can be deemed illegal and, as a result, you can be entitled to a much more substantial severance package.

This case commentary was written by Boris Alexander, Employment Lawyer at Monkhouse Law.

Monkhouse Law is an employment law firm located in Toronto with a focus on workers’ issues. Give us a call at 416-907-9249 or fill out this quick form. We offer a free 30-minute phone consultation.