Two recent Ontario court decisions will allow employers to rest a bit easier as troubling termination provisions will not always be ruled invalid.

Both cases, Baker v. Van Dolder’s Home Team Inc. and Li v. Wayfair Canada ULC, focused on employment contract wording that has been contentious in employment litigation in recent years.

The Li ruling said that a court should not automatically rule that the language in an employment contract would assume an employer might act illegally.

Ontario ruling caused language to be scrutinized

Before these rulings were handed down, a separate case from 2020, Waksdale v. Swegon North America Inc. had caused much disruption for employers and lawyers.

“The Court of Appeal (previously) held that a contract’s termination provision will be unenforceable when any part of the contract provides for less than what is required by the Employment Standards Act (ESA) at the time of termination,” Russell Groves, partner in the employment and labour group at Dentons law firm, said to PeopleNX.

“Then Waksdale comes along, which was a pretty big shift again, and basically the court said, ‘Well, it doesn’t matter if the termination provision is enforceable.’ Let’s look outside the termination provision and see if there’s other parts of the contract or the employment relationship that could, at the time of termination, result in illegality, like the person getting less than their statutory entitlement,” he said.

Waksdale contended that the termination provision in his employment contract breached the minimum requirements under the ESA, which is illegal.

When this ruling was released, “that was a shocker, but also manageable,” Groves said. “(Employment lawyers) then added language. We all had mostly termination provisions we’re giving clients that worked.”

Courts began to rule that certain phrases, such as “at any time” or “sole discretion” could be widely interpreted to mean even more.

“And then these decisions started coming out where the court said, ‘If you say you can terminate at any time without cause,’ any time could be interpreted as, for example, terminating someone during a protected statutory leave like pregnancy or parental leave, and that’s illegal,” he said.

This caused many employment lawyers to go back and review a lot of contracts, according to Groves. “The plaintiff sidebar was going crazy because that probably knocked out 60 per cent of the contracts in the province.”

Tide turned away from employees

However, the recent ruling may have reversed that trend.

“You can be terminated at any time, and basically the court of appeal said: ‘That’s not what our job is, to give life to the intentions of the party when they wrote the contract. It’s not realistic to think the intentions of the parties were to allow the employer to contract below the ESA and breach the ESA, so we’re not going to interpret it that way,'” Groves said.

“We’re all calling it a return to sanity.”

Prudent guidance to employers is to remove the phrases, “at any time,” and “sole discretion,” he said.

“I don’t think those words even added any value for employers . . . I’ve taken them out anyway, out of an abundance of caution, and I think employers should keep doing that.”

As well, in order to be doubly sure that contracts hold up to future scrutiny, “employers also should add language in their agreement that clearly states the intention of the parties to comply with the ESA at all times. That goes to that whole contextual argument of the court,” Groves added.

Advice for HR professionals

For HR departments, being aware of this new reality is critical when it comes to contract language.

“It’s always good to review (contract) templates once a year at least because of minor changes in the law but employers, I don’t think need to run out and make any changes and get new contracts from employees at this point,” he said.

Employers should always reach out to a legal professional if there are any questions. “Any good employment lawyer can revise the termination provision to make sure it’s enforceable in five minutes.”

But if an employment contract is rewritten just to ensure compliance with the law, consideration must be given, such as a $100 signing bonus, Groves suggested.

And don’t pressure employees to sign right away. “If you said, ‘Here’s your contract, sign it right now,’ you’d be in trouble, especially if you didn’t explain it.”

“As long as the person has the ability to get independent legal advice, I would give everyone at least a week, maybe two weeks of time to sign it back,” he said.