This is part two in our series on recent Ontario Superior Court decisions that employers should be aware of before finalizing future employment agreements. See here for our first part, on the recent trend of lengthy notice period awards for long service employees of advanced age.

As most employers know, unenforceable termination clauses often give rise to costly wrongful dismissal claims. Yet the case law in this area is constantly evolving, and it is increasingly challenging to stay abreast of what a court will consider to be enforceable.

In Khashaba v Procom Consultants Group Ltd., 2018 ONSC 7617, the Court reminded employers that a valid termination provision must guarantee an employee at least their minimum entitlements under the Employment Standards Act (ESA). Under the ESA, the standard for terminating employment without notice (or wages and benefits in lieu) is non-trivial “wilful misconduct” (or “wilful neglect of duty”). The employee must receive at least their ESA entitlements if their employment may be terminated for conduct that falls short of this standard. Otherwise, following Khashaba, the clause will be unenforceable and the employer may be liable for providing reasonable notice of termination.

Key Takeaways

The Khashaba decision holds that if a “for cause” termination provision provides for termination without notice, it must satisfy minimum standards under the ESA. The statutory standard — non-trivial “wilful misconduct” and “wilful neglect of duty” — is distinguished from the common law standard, and a breach of the common law standard is not necessarily a breach of the statutory standard. Thus, a contract that provides for no notice of termination (or pay and benefits in lieu) on the basis of the (lower) common law standard will be unenforceable.

A practical solution to resolve this issue is to always include language in a “for cause” termination provision that confirms minimum statutory entitlements will be provided in any event (e.g. “Where there is “cause” for termination of employment, the employee will not be provided termination notice, or wages and benefits in lieu, save and except that which is required under the ESA”). Alternatively, the provision would have to effectively distinguish between what entitlements apply in the case of the common law standard versus the statutory standard.

To identify the best language for a termination provision in the circumstances at hand, employers should seek assistance from legal counsel.

Background

Mr. Khashaba applied for a 6-month fixed-term contract with Alectra Utilities through Procom, a recruiting, staffing and placement agency. In emails to Mr. Khashaba, Procom sent him congratulatory messages, asked him to complete online training and a criminal background check and provided him with a contract of employment, which he signed and returned. Based on these communications, Mr. Khashaba understood that he had secured the job with Alectra and submitted his notice of resignation to his then-current employer. However, Alectra did not hire Mr. Khashaba for the position.

Mr. Khashaba brought an application under the Rules of Civil Procedure, seeking a determination of rights and the interpretation of the employment agreement that he alleged was concluded between himself and Procom.

In his application, Mr. Khashaba claimed that the “Early Termination” provision in the employment agreement (copied below) was unenforceable because the “Termination for Cause” clause allowed for termination for behaviour meeting the standard of “cause” at common law, as opposed to “wilful misconduct” as required under the ESA. As such, he argued that the entire “Early Termination” provision of the employment agreement, consisting of five clauses, was void. He sought termination pay for the common law notice period, constituting the remaining term of the contract.

        5.        Early Termination

(a)        Resignation   You must give 2 weeks’ prior written notice to Procom if you wish to terminate this Agreement before the Scheduled End Date, which notice may be waived in whole or in part by Procom at its sole discretion, without any further obligation or liability to you, other than accrued wages, vacation pay, and benefits continuation (if applicable) to your last day of active employment.

(b)        Termination for Cause   Procom may, at its option, terminate your employment immediately for cause, without prior written notice or compensation of any nature. For these purposes, “cause” means any grounds at common law for which an employer is entitled to dismiss an employee summarily without notice or compensation in lieu of notice.

(c)       Termination without Cause   Notwithstanding the fixed Term of this Agreement, Procom may terminate your employment without cause at any time by providing you with only the minimum amount of notice of termination or pay in lieu thereof (at the Company’s sole discretion, in any combination), minimum benefits continuation (if applicable), and minimum severance pay (if applicable), as required by the Employment Standards Act, 2000, as well as accrued wages and vacation pay up to and including the date of termination. In no event will you receive less than your minimum entitlements under the Employment Standards Act, 2000. If a greater entitlement is required under the Employment Standards Act, 2000 than this provision grants to you, your entitlements shall automatically be increased to satisfy only the minimum entitlements required by the Employment Standards Act, 2000 on the termination of your employment. You understand and agree that the entitlements set out in this paragraph will constitute your full, exclusive and final entitlements to notice or pay in lieu of notice, severance pay (if applicable), and benefits continuation (if applicable), including in the event of a constructive dismissal and including any entitlements to common law notice and by your acceptance of this Agreement waive any further other claim at common law relating to such termination.

(d)       You agree that these provisions respecting resignation and termination shall remain in effect throughout this Agreement and any renewal or extension of this Agreement, notwithstanding any other changes to the terms and conditions of this Agreement or to any renewal or extension of this Agreement, unless a specific written agreement is made to change these provisions.

(e)        Return of Property   Upon termination of your employment for any reason whatsoever, you shall immediately return all property of the Client…

Decision

The Court considered whether there was a valid contract, whether the contract violated the ESA, and the consequences of the violation.

The Court found that Procom had concluded a contract of employment with Mr. Khashaba, and that the “Termination for Cause” clause did not comply with the ESA. The Court determined that the clause permitted termination without notice (or pay in lieu thereof) for conduct meeting the standard of just cause at common law, while the ESA requires the higher standard of “wilful misconduct”. According to the Court: “[w]ilful misconduct involves an assessment of subjective intent, whereas just cause is a more objective standard. Wilful misconduct is colloquially described as “being bad on purpose.” Careless, thoughtless, heedless, or inadvertent conduct, no matter how serious, does not meet the ESA wilful misconduct standard. By contrast, common law just cause for dismissal may be found on the basis of prolonged incompetence, without any intentional misconduct.”

However, the Court rejected the submission that the non-compliance with the ESA in the “Termination without Cause” clause voided the entire “Early Termination” provision. Rather, the remainder of the “Early Termination” provision was still valid and enforceable. The Court emphasized that it was “not interpreting, rewriting or reading down any part of the Employment Agreement to make it comply with the ESA” in finding only the “Termination for Cause” clause was void.

While the Court remarked that the circumstances bore no resemblance to a typical termination, it ultimately held that Procom terminated its employment agreement with Mr. Khashaba without cause. Under the “Termination without Cause” clause, Mr. Khashaba was entitled to the minimum amount of pay in lieu of notice of termination, minimum benefits continuation, and minimum severance pay as required by the ESA. Since Mr. Khashaba worked for Procom for less than three months, pursuant to s. 54 of ESA, he was not entitled to any notice of termination, pay in lieu of notice, benefits or severance pay. Therefore, he was not entitled to any damages under the “Termination without Cause” clause.

• Many thanks to Shereen Aly for her assistance with this article.