On 8 June 2022, the Ontario Court of Appeal reversed the lower court's decision in Rahman v Cannon Design Architecture Inc (for further details please see "Significance of bargaining power in employment law").
This reaffirms that the Court of Appeal's decision in Waksdale v Swegon North America Inc(1) is the law in Ontario. In determining the validity of the termination provisions in an employment agreement, the courts will give the provisions a plain language interpretation without much consideration to the respective bargaining power of the parties or other subjective considerations, such as intent or access to independent legal advice.
The appellant, Farah Rahman, had been employed by the respondent employer, CannonDesign, for over four years. At the time of joining the employer, Rahman signed two contracts: an employment offer letter and an officer agreement. These agreements provided that in the event of a conflict between the two agreements, the employment offer letter was to govern.
The employment offer letter included a termination provision with respect to just cause, which stated that "CannonDesign maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal".
When Rahman's employment was terminated without cause, she was provided four weeks' base salary. She brought a wrongful dismissal action on the grounds that her contractual termination provision did not limit her termination notice entitlement, claiming that she was therefore entitled to an amount reflecting reasonable notice of termination.
The motion judge found the termination provisions valid and enforceable in requiring only the payment of the minimum termination-related amounts under the Employment Standards Act 2000 (ESA). In making this finding, the motion judge further considered that Rahman had received independent legal advice, that she was a sophisticated party, and that the parties' subjective intention was to comply with the ESA.
Overturning the motion judge's decision and awarding damages in lieu of reasonable notice to Rahman, the Court of Appeal held that the motion judge erred by allowing subjective considerations, such as the parties' sophistication, access to independent legal advice and subjective intent to override the plain language of the employment offer letter's termination provisions. The Court of Appeal stated that "it is the wording of a termination provision which determines whether it contravenes the ESA".
Consistent with its previous decisions, the Court of Appeal determined that the employment offer letter's just cause termination provision contravened the ESA by potentially contracting out of the requirement to provide minimum notice entitlements to employees even if those employees are terminated for just cause. The Court of Appeal stated that ESA notice and termination pay must be provided even for just cause terminations, except for "prescribed employees", such as employees who have been "guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer". In recent case law, the Court of Appeal also clarified that demonstrating wilful misconduct requires proving the employee was "being bad on purpose".
The employment offer letter's just cause termination provision provided no language that limited its scope specifically to just cause terminations for wilful misconduct or otherwise ensuring that terminated employees received their minimum entitlements in the event of termination for just cause. As such, this was interpreted as an attempt to contract out of an employment standard, and therefore void.
This recent decision reinforces the growing need for employers to review the terms of their employment contracts, with a view to ensuring that termination provisions comply with the ESA's minimum requirements as currently interpreted by Ontario's courts. If even one provision in a termination clause is considered unenforceable for potentially providing less than what employment standards legislation requires, all of the contract's termination provisions could be found to be unenforceable, leading to potentially costly legal claims by terminated employees.
The Court of Appeal's decision in Rahman emphasises the Courts' focus on the wording of contractual provisions to determine compliance and cautions employers against relying on employees' access to independent legal advice, employers' subjective intent to comply with legislation or the sophistication of the contracting parties as a basis for seeking to enforce plain language that may not meet the requirements of the ESA. This case serves as a further example of the tendency of Ontario courts, addressing wrongful dismissal claims, to closely scrutinise employment contracts with respect to any potential violation of the ESA. There is a corresponding importance for employers to ensure their contractual termination language has been prepared both to reflect the contracting parties' intentions and withstand such scrutiny.
For further information on this topic please contact Lisa Cabel or Qasid Iqbal at KPMG Law by telephone (+1 416 777 8000) or email ([email protected] or [email protected]). The KPMG Law website can be accessed at www.kpmg.com.
(1) Further information is available here.