A recent court decision in Ontario has added another, extremely broad basis upon which a termination provision in Ontario may be found to be void and unenforceable.

In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the court considered a termination provision which stated:

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.

[…]

This termination is clearly unenforceable on the basis that “base salary” does not cover the requirement that full compensation, which could include commissions, for example, be provided for the minimum notice period under the Employment Standards Act, 2000 (“ESA”). In addition, the provision does not recognize that statutory severance pay must be paid in lump sum rather than salary continuance under the ESA. However, the judge went even further to hold that the ability to terminate in the employer’s “sole discretion” and “at any time” had the potential of breaching the ESA. The judge held that this language purported to allow the employer to terminate an employee when they were entitled to reinstatement after a protected leave and/or as reprisal for exercising a right under the ESA, which would breach sections 53 and/or 74 under the ESA, respectively.

Takeaway

The impact of this decision remains to be seen. It is possible that it will be appealed, and it is also possible that other courts will not follow this decision. Unfortunately, language stating that the employer may terminate “at any time” and in its “sole discretion” is included in the vast majority of employment contracts in Ontario and if this decision is followed, the vast majority of employment agreements in Ontario might now be unenforceable. On the flip side, this case could potentially be distinguished in situations where a contract does not have this same combination of issues (i.e., sole discretion + at any time + “base salary” only). It is possible that it was this language collectively that voided the contract on the whole, and contracts containing only “at any time” could survive a challenge.

Either way, this case shows a determination of the Courts to not enforce employment agreements. In recent years, the survival rate of a termination clause in the Court has been only one case where the courts had found that the language in an agreement was enforceable, however this was with respect to stock awards back in 2022.

As a result of this recent decision, we recommend and are available to revise the employment agreements that are distributed to employees. While it the courts are seemingly finding any reason to knock down any employment agreement, we have some revisions we can make to our standard templates aimed at complying with this most recent decision.

Please let us know if you are interested and we will be happy to assist.