In the recent decision of Covenoho v. Pendylum Ltd., 2017 ONCA 284, the Ontario Court of Appeal put an end to any debate about the enforceability of termination provisions in employment agreements that may violate minimum employment standards legislation in the future. The takeaway for employers from the case is as simple as it is noteworthy: a termination provision that breaches minimum employment standards legislation in the future – even if compliant at the time of the employee’s termination from employment – is void and therefore will not be enforced.
Joss Covenoho worked for Pendylum Inc. under a one year fixed-term employment agreement. Pendylum terminated the employment agreement after Ms. Covenoho had worked just less than three months. Relying on a termination provision in the agreement, Pendylum terminated the fixed term agreement with no advance notice to Ms. Covenoho.
Ms. Covenoho sued, claiming damages equivalent to wages owing under the balance of the fixed term agreement. Ms. Covenoho’s claim was premised on the notion that the termination provision in the employment agreement, while not in violation of minimum employment standards legislation at the time she was terminated, would have violated it if she had remained employed for more than three months, which would have entitled her to notice of termination.
At first instance, Ms. Covenoho’s claim was dismissed on the basis that the termination provision – which purported to provide Ms. Covenoho with no advance notice of termination – was valid and enforceable. Ms. Covenoho had been employed for less than three months and was therefore not entitled to notice under the applicable employment standards legislation (under Ontario’s Employment Standards Act, only employees with at least three months of service are entitled to notice). Pendylum terminated Ms. Covenoho’s employment just prior to her reaching three months of service.
On appeal, the Ontario Court of Appeal sided with Ms. Covenoho. The termination provision in the agreement breached the applicable employment standards legislation in that it allowed Pendylum to terminate Ms. Covenoho’s employment, at any time, without notice. In doing so, the Court reasoned that a termination provision in an employment agreement “…. must be construed as if the [employee] 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.”
In the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other provision to the contrary, a fixed term employment contract obligates an employer to pay an employee to the end of the term and that obligation is not subject to mitigation. As a result, Ms. Covenoho was awarded damages of $56,000, which represented the equivalent to wages owing under the balance of the fixed term agreement, with no offset for mitigation.
The message from the Court of Appeal could not be clearer: in assessing the enforceability of any termination provision, employers must now assess whether the provision would be enforceable not only at the time of termination of the employment relationship, but throughout the life cycle of the employment relationship. Put simply, the question employers should be asking is not just “what now?”, but “what if?” (the case is also a stark reminder about the potential liabilities associated with terminating a fixed-term employment agreement that does not have a valid and enforceable termination provision – for more about that read our previous post here).