Court Sinks Teeth Into Bad Contract

Written by Daniel Standing LL.B., Editor, First Reference Inc.

It’s often said that the employer-employee relationship is one that can easily reflect a power imbalance, leading courts to look very carefully at the provisions of employment contracts to make sure they are clear and legally enforceable. Recognizing that employers can take advantage of unsuspecting employees by couching unfair conditions in legalese, courts sometimes resort to the principle of contra proferentem to resolve ambiguity in favour of the weaker party. Other times, they will declare portions of the contract void for running contrary to legislation. A recent decision of Ontario’s Superior Court of Justice, 2022 ONSC 2964 (CanLII), shows how the power imbalance can impact the question of wrongful termination and the damages that flow from it.

Background

The plaintiff worked as a receptionist for a couple of aging dental surgeons in Toronto. In 2015, as they neared retirement, the surgeons gave their employees fair warning, handing them employment contracts that they could either sign at that time in exchange for $500, or keep working without contracts and be terminated on a specified date, at which time they would be offered an employment contract that would govern the working relationship until the dental practice was closed. The surgeons said they were doing this to preserve the practice’s goodwill, and to provide stability and clarity in the workplace. After two days, the plaintiff signed her contract.

Things appear to have continued as they did before until 2019, when the plaintiff got notice the practice would close the following spring. She kept working, took a vacation and went on sick leave. Unable to afford the rent she paid in Toronto, she moved to her hometown of Glencoe in search of cheaper accommodations. Around the time she lost her job, the pandemic hit, stalling her job search until January 2021. She eventually found a job as a frontline worker in a long-term care home that May.

The plaintiff must have reflected on the legalities of how her former job came to an end because in her lawsuit, she argued the termination, conflict of interest and confidentiality clauses were contrary to legislation and, because of their illegality, she should receive common-law damages for wrongful dismissal. In rebuttal, the surgeons argued there was nothing wrong with the contract and, furthermore, the plaintiff had failed to mitigate her damages.

What the court said

Before looking closely at the contract, the court set out the legal landscape for determining the enforceability of employment agreements. Essentially, because of the power imbalance and the unlikelihood of employees to challenge what employers ask them to sign, the presumption that an employee is owed reasonable notice of termination is only rebutted by clear wording to that effect. It described the effect of a contract that is at odds with employment standards legislation: the terminated employee becomes entitled to common-law damages.

Looking first at the termination clause, the court concluded there was nothing to suggest it was contrary to the Employment Standards Act. Whereas the plaintiff said the language created ambiguity about her right to continue to receive benefits under the Act, the court simply didn’t see it that way, noting the contract spoke of the plaintiff’s right to receive her entitlements under the Act, but “no further amount.”

The conflict of interest and confidentiality clauses were more problematic. As for the former, words were missing, and parts of it were broad, unspecific and ambiguous. The court said that one would have to guess at what sort of conduct would lead to outright dismissal. The latter clause simply imposed termination for breaches of confidentiality. What it left out, said the court, was the requirement that misconduct be wilful and not trivial, as required by the Act. Inadvertent disclosure could be met with termination, which was contrary to the legislation and therefore invalid.

Lastly, the court examined whether the plaintiff had reasonably mitigated her losses. The focus of this inquiry was on her decision to move from Toronto to Glencoe, and the lag of 18 months before she found a new job. The court considered the panoply of factors at play, and said that normally, her efforts would not have been enough, but given the “somewhat unique set of circumstances,” it was reasonable to reduce her notice period by only three months. Since the parties agreed that in the event the court found there had been a wrongful termination, reasonable notice would be 18 months, this was reduced to 15 months. Finally, the court declined to deduct any amounts the plaintiff received as the Canada Emergency Response Benefit.

Key takeaways

No one is served by a poorly drafted contract. When someone is fired or otherwise loses their job based on a document that is unclear, poorly drafted or contrary to statutory guarantees, there is a good chance a court will side with the weaker party. However, would-be plaintiffs beware: courts won’t bend over backwards to find ambiguity where there is none.

Not only does it pay to cross the T’s and dot the I’s, but legal advice is also often indispensable in ensuring compliance with legislative employment standards. A lot is on the line, and it makes sense to get it right the first time instead of resorting to the courts to correct the errors.