The recent Ontario Superior Court of Justice decision Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”), has the employment law world abuzz.

Both employers and employees should immediately review their employment contracts.

While most of Madam Justice Pierce’s decision concerns relatively well-known legal concepts recognized in employment law for at least the last few years, this blog focuses more on her novel acknowledgement that two phrases frequently used in employment contracts across Canada can now expose employers to common law reasonable notice damages.

Background

Karen Dufault sued her former employer, the Town of Ignace, for wrongful dismissal. Ms. Dufault started working for the Town as a Youth Engagement Coordinator on October 31, 2021. She held this position for approximately one year and three months – until her untimely termination without cause.  Relying on the “without cause” termination provision in the contract, the Town provided her with two weeks of notice.

Ms. Dufault’s employment was for a fixed term, meaning that it had a set start and end date. This is significant because if Ms. Dufault could prove that the termination provisions were invalid, she would be owed the remainder of the fixed term despite not working the full term. That amounted to 101 weeks of full compensation instead of just the two she was given.

Invalidating the termination provisions

The Court considered three distinct arguments for why the termination provisions were invalid. The provisions are reproduced below:

4.01 The Township may terminate this Agreement and terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee’s employment is terminated with cause, no further payments of any nature, including but not limited to, damages are payable to the Employee, except as otherwise specifically provided for herein and the Township’s obligations under this agreement shall cease at that time. For the purposes of this Agreement, “cause” shall include but is not limited to the following:

(i) upon the failure of the Employee to perform the services as hereinbefore specified without written approval of Municipal Council and such failure shall be considered cause and this Agreement and the Employee’s employment terminates immediately;

(ii) in the event of acts of willful negligence or disobedience by the Employee not condoned by the Township or resulting in injury or damages to the Township, such acts shall be considered cause and this Agreement and the Employee’s employment terminates immediately without further notice.

4.02 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:

(i) the Township will continue to pay the Employee’s base salary for a period of two (2) weeks per full year of service to a maximum payment of four (4) months or the period required by the Employment Standards Act, 2000 whichever is greater. This payment in lieu of notice will be made from the date of termination, payable in bi-weekly installments on the normal payroll day or on a lump sum basis at the discretion of the Township, subject at all times to the provisions of the Employment Standards Act, 2000.

(ii) with the exception of short-term and long-term disability benefits, the Township will continue the Employee’s employment benefits throughout the notice period in which the Township continues to pay the Employee’s salary. The Township will continue the Employee’s short-term and long-term disability benefits during the period required by the Employment Standards Act, 2000 and will pay all other required accrued benefits or payments required by that Act.

(iii) all payments provided under this paragraph will be subject to all deductions required under the Township’s policies and by-laws.

(iv) any further entitlements to salary continuation terminate immediately upon the death of the Employee.

(v) such payment and benefits contributions will be calculated on the basis of the Employee’s salary and benefits at the time of their termination.

First, Justice Pierce considered provision 4.01 – the “with cause” provision. Following the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, she found that since the “with cause” provision was too broadly defined (and, therefore, violated the minimum threshold set by the Employment Standards Act (the “ESA”) to terminate an employee without pay), all of the termination provisions in the contract were invalid.

Second, she examined provision 4.02: “the Township will continue to pay the Employee’s base salary for a period of two (2) weeks…” Ms. Dufault argued this clause violated the ESA, as section 60 of the ESA, stipulates that “wages” may not be reduced during the statutory notice period, when the employee is entitled to receive all “regular wages” (which include not just salary, but commissions, vacation pay, etc).  Justice Pierce agreed.

While both of those findings are relatively commonplace, it is Justice Pierce’s third finding that will send shockwaves through the employment law community.

Justice Pierce reviewed section 4.02: “The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon…” Ms. Dufault argued that the use of the words “its sole discretion” and “at any time” invalidated the termination provision because there are situations within the ESA where an employer is prohibited from terminating an employee outright, and the language used attempted to override those provisions. For example, section 53 of the ESA prohibits an employer from terminating an employee on the conclusion of an employee’s leave, and section 74 prohibits an employer from terminating an employee for inquiring about or exercising any right under the ESA (for example, asking about entitlement to overtime pay).

In both above examples, the ESA prevents an employer from terminating “at any time” it chooses and the choice to terminate is not in its “sole discretion”. Justice Pierce’s agreed with this novel argument as the third reason why the termination clause was unenforceable, resulting in Ms. Dufault receiving the full unexpired portion of her fixed-term contract.

What does this decision mean for the employment law world?

This decision will likely have massive implications for both employers and employees across Ontario because the majority of employment agreements contain similar “at any time” or “sole discretion” language.  If Dufault is followed, those previously enforceable agreements will no longer be valid.

This blog cannot be relied on as legal advice.  If you would like your employment contract reviewed to see if it is affected by this decision, contact our team of lawyers at Levitt LLP for a consultation.