In W. v. 1959612 Ontario Inc., 2024 ONSC 3452, an Ontario court found that an employment agreement’s termination clause was unenforceable because it violated the Employment Standards Act, 2000 (ESA). The employee was therefore entitled to common law reasonable notice rather than the more limited payments set out in the agreement.
The court also ordered the employer to pay $10,000 in punitive damages after it repeatedly failed to pay the employee’s statutory minimum entitlements, approved business expenses, and other amounts it had acknowledged were owing.
This decision reminds employees that termination clauses must comply with the ESA. If a clause limits required wages or benefits, makes payment conditional on signing a release, or defines just cause more broadly than the ESA permits, the clause may be unenforceable.
Background
The employee worked as an executive assistant for approximately four and a half months before being terminated without cause or notice. She was 52 years old at the time.
Her employment agreement contained a termination clause that limited her pay in lieu of notice to two weeks plus her ESA minimum entitlements. It also required her to sign a full and final release before receiving any payment and defined just cause more broadly than permitted under the ESA.
The employer did not pay anything beyond the wages the employee had earned up to her termination date. It also failed to reimburse approved business expenses and issued her Record of Employment nearly one month late, delaying her ability to apply for employment insurance.
Despite repeated written requests from the employee’s lawyer, the employer continued to withhold the amounts owing. It attributed the non-payment to a “clerical error” but did not correct the issue. The employee brought a motion for summary judgment.
What the Court Decided
The Termination Clause Was Unenforceable
The court found several independent reasons why the termination provisions violated the ESA and were unenforceable as a whole.
First, the without-cause provision limited termination pay to base salary and only certain benefits. It excluded vacation pay, life insurance, and accidental death and dismemberment coverage, even though the ESA requires employees to continue receiving all required wages and benefits during the statutory notice period.
Second, the agreement required the employee to sign a release before receiving her statutory entitlements. An employer cannot make payment of an employee’s ESA minimum entitlements conditional on signing a release.
Third, the just-cause provision listed categories of conduct that did not meet the ESA’s higher standard of “wilful misconduct, disobedience or wilful neglect of duty.” The clause could therefore have denied the employee her statutory minimum entitlements in circumstances where the ESA would still require payment.
A Saving Provision Could Not Fix the Clause
The employment agreement included a provision stating that the employee would receive her ESA entitlements if they exceeded the contractual terms. The employer argued that this language preserved the termination clause.
The court rejected that argument. A saving provision cannot fix a termination clause that violated the ESA when the employment agreement was signed.
The court explained that allowing employers to include unlawful terms while relying on a general saving provision would disadvantage employees who may not know their legal rights. The entire termination provision was therefore void, and the employee was entitled to common law reasonable notice.
The Employee Received Two Months’ Notice After Four and a Half Months of Service
With the termination clause set aside, the court assessed the employee’s reasonable notice entitlement under the common law.
The court considered the employee’s age, short length of service, executive assistant position, and the job market conditions during the COVID-19 pandemic. It awarded a two-month notice period.
This was less than the five months the employee had requested but significantly more than the two to three weeks the employer had originally offered.
The court gave limited weight to the effects of the pandemic. Although the employee had applied for more than 245 positions, the evidence did not provide enough specific information showing how the pandemic had affected her particular job search.
The Employee Was Entitled to Earned Bonus Payments
The employee had completed two of the tasks required under her bonus arrangement before she was terminated.
The employer’s termination letter acknowledged that at least one of the tasks had been completed by including a partial bonus payment in the amounts it initially offered. The employer later disputed the bonus claim but provided little evidence to support its position.
The court accepted the employee’s evidence and awarded her $900 for the two completed bonus tasks.
The court also found that the employment agreement’s bonus clause did not clearly remove the employee’s right to bonus compensation following an unlawful termination without notice. The clause therefore would not have displaced her common law rights in any event.
Mental Distress Damages Require Supporting Evidence
The employee also sought damages for mental distress. The court did not award them because the employee had provided only a general statement that she had experienced mental and financial distress.
There was no medical evidence, detailed description of her symptoms, or other evidence supporting the claim.
The court confirmed that medical evidence is not always required. However, an employee must provide some evidence showing distress beyond the normal hurt feelings and stress that may accompany a dismissal.
The Court Awarded $10,000 in Punitive Damages
The court awarded the employee $10,000 in punitive damages after finding that the employer’s conduct was a significant departure from ordinary standards of decent behaviour.
The employer had repeatedly failed to pay the employee’s ESA minimum entitlements despite receiving several written requests over a period of months. Its own representative attended cross-examination without knowing whether the statutory amounts had ever been paid.
The employer also issued the employee’s Record of Employment late, withheld approved expense reimbursements, and never corrected the alleged “clerical error” it relied on to explain the missing payments.
The court found that punitive damages were necessary to denounce and deter this conduct, particularly because dismissed employees are vulnerable and the ESA is intended to address the power imbalance between employees and employers.
The Total Award
The employee was awarded a total of $19,923.85, consisting of:
- $7,500 for lost salary during the two-month notice period;
- $750 for benefits during the notice period;
- $900 for earned but unpaid bonus compensation;
- $726.92 for accrued but unpaid vacation pay;
- $46.93 for unreimbursed business expenses; and
- $10,000 in punitive damages.
Key Takeaways for Employees
Your Employment Agreement May Not Limit Your Legal Entitlements
Many employment agreements contain termination clauses that do not comply with the ESA. The problems may not be immediately obvious to an employee reviewing the agreement.
If a clause limits termination pay to base salary, excludes required benefits, makes payment conditional on signing a release, or uses an overly broad definition of just cause, the clause may be unenforceable. The employee may then be entitled to common law reasonable notice, which can be significantly greater than the amount stated in the agreement.
Your Employer Cannot Withhold ESA Minimums Until You Sign a Release
An employer cannot require an employee to sign a release before paying minimum termination pay, vacation pay, benefit continuation, or other amounts required under the ESA.
A release may be requested in exchange for amounts above the statutory minimums, but an employee’s minimum legal entitlements must be paid regardless of whether the employee signs away additional claims.
You May Still Be Entitled to Earned Bonuses After Termination
Bonus compensation that was earned before termination does not necessarily disappear when employment ends. Employees may also be entitled to compensation for bonuses they would have earned during the reasonable notice period.
Whether a bonus is recoverable will depend on the wording of the bonus plan and the employment agreement. Any language attempting to remove bonus entitlement must be clear and legally enforceable.
Mental Distress Claims Must Be Supported by Evidence
Mental distress damages may be available when an employer acts unfairly, dishonestly, misleadingly, or in bad faith during the manner of dismissal. However, the employee must provide evidence of actual harm beyond the normal stress or disappointment associated with losing a job.
If an employee believes an employer’s conduct caused serious mental distress, it is important to keep records and discuss the available evidence with an employment lawyer.
Courts Can Award Punitive Damages in Exceptional Cases
Punitive damages are not awarded in every termination case. They may be available when an employer’s conduct is particularly harsh, wrongful, or deserving of punishment.
In this case, the employer repeatedly failed to pay statutory minimum entitlements, ignored several requests for payment, and offered no reasonable explanation for its conduct. The court found that a punitive damages award was necessary to denounce the behaviour and discourage similar conduct.
Short Service Does Not Automatically Mean a Small Severance Package
An employee with less than five months of service received a two-month common law notice period, along with compensation for benefits, bonus payments, vacation pay, expenses, and punitive damages.
Length of service is only one factor considered when assessing reasonable notice. An employee’s age, position, availability of similar work, and other circumstances may also affect the amount of notice or compensation owed.
If you have been terminated and your employer is withholding payments or pressuring you to sign a release, contact Monkhouse Law Employment Lawyers today for a free 30 minute phone consultation. Your employment agreement may not reflect your full legal entitlements, and you could be owed significantly more than your employer has offered.