A recent decision of the Ontario Court of Appeal appears to have gone against accepted precedent and expanded the range of situations in which termination provisions in employment contracts will be enforced.
But should employers be celebrating Musoni v. Logitek Technology Ltd., 2013 ONCA 622 (“Musoni”)? Or should the case be discounted as irrelevant because the plaintiff did not actually raise the validity of the contract as an issue?
Termination Provisions in Employment Contracts
Employees in Ontario who are terminated without cause are generally entitled to reasonable notice of termination at common law, or pay in lieu of notice. This requirement can be onerous on employers, since “reasonable notice” can be challenging to define, and often significantly exceeds the employee’s minimum entitlements under the Ontario Employment Standards Act (“ESA”).
As a result, many employers have their employees sign contracts with “termination provisions” that specify exactly how much notice, or pay in lieu, the employee will receive upon a without-cause termination.
However, a termination clause cannot provide for the employee to receive less notice than the minimum set out in the ESA. If it does, the clause will be invalid and the employee will be entitled to common law reasonable notice.
What if the Clause Only Contravenes the ESA in Limited Circumstances?
Courts in Ontario have regularly accepted that if a termination provision could be contrary to the ESAin certain circumstances, that provision is void and common law reasonable notice will apply – even if the provision complies with the ESA in the specific circumstances of the case.
Wright v. The Young and Rubicam Group of Companies, 2011 ONSC 4720 is a perfect example of this situation.
Mr. Wright’s employment contract provided him with sufficient notice and severance pay at the time he was dismissed. However, had he been dismissed later in time, his contractual entitlements would have fallen below the statutory minimums (because the statutory minimums increase as length of service increases).
Therefore, the Ontario Superior Court of Justice held that his contractual termination provisions were void, and awarded Mr. Wright common law reasonable notice.
That is the principle that Musoni may – or may not – have changed.
The Musoni Decision
In Musoni, Mr. Musoni (self-represented) alleged that he was wrongfully dismissed. His contract of employment included a clause which allowed either party to terminate the contract on fifteen days’ notice. No reference was made to the ESA.
After two years and five months of employment, Mr. Musoni’s employment was terminated and he received fifteen days’ pay in lieu of notice. He was entitled to two weeks’ pay in lieu of notice under the ESA, so the contract provided him more than his minimum entitlement.
However, if Mr. Musoni had been dismissed after three years or more of employment, his contractual entitlement of fifteen days would have fallen below the minimum notice requirements under the ESA. This would appear to be exactly the situation dealt with in Wright.
Justice Morgan of the Superior Court of Justice dismissed Mr. Musoni’s claim and found that he had received the appropriate payment upon termination.
It is important to note that Mr. Musoni did not challenge his contract as being invalid; rather, he sought to establish that his employer did not have just cause for his dismissal, even though his employer had dismissed him without cause. Perhaps this is why Justice Morgan did not discuss theWright line of cases and consider the enforceability of the termination provisions. Justice Morgan did, however, discuss the ESA notice requirements and found that the payment received by Mr. Musoni complied with the legislation.
Mr. Musoni appealed this decision to the Ontario Court of Appeal. In one paragraph, the Court of Appeal dismissed the appeal, finding that Mr. Musoni was given pay in lieu of notice as per his employment contract and there was no reason to interfere with Justice Morgan’s decision.
Lessons for Employers
What can we take away from the Musoni case? Has the Court of Appeal overturned previously clear jurisprudence regarding the validity of termination provisions, or is this simply a matter of Mr. Musoni failing to make the right arguments before the Court?
In our view, employers would be wise not to read too much into Musoni, particularly given that there was no discussion of Wright and like cases. Termination language in employment contracts should still be drafted with caution so that it complies – at all times and in all circumstances – with the ESA or other applicable legislation.
However, at least for now, Musoni does give us reason to wonder if there will be a shift in the thinking of Ontario’s courts.