Possible Denial of ESA Minimums Voids Termination Clause

Lewis Waring, Paralegal and Student-at-Law, Editor, First Reference Inc.

A recent decision from Ontario’s Divisional Court illustrates an important point about the concept of notice in Ontario employment contracts. This point concerns the relation between the Employment Standards Act, 2000 (“ESA”) and Ontario common law. This important point is that employees are, by default, entitled to common law reasonable notice. Common law reasonable notice is roughly equivalent to one month of compensation for each year of employment. In comparison, minimum notice entitlements under the ESA are limited to one week per year of employment.

Employers who wish to prevent their employees from obtaining common law reasonable notice are fully within their legal rights to do so. Frequently, such employers seek to limit their employee’s notice entitlements to the minimums guaranteed under the ESA. However, in order to limit the notice entitlements of employees, an employer must draft its employment contracts correctly. Namely, employers must ensure that their employment contracts guarantee its employees their minimum notice entitlements under the ESA.

If a court finds that an employment contract does not guarantee an employee his or her minimum entitlements under the ESA, the contract will be struck down and the employee will obtain reasonable notice at common law. In other words, unless the employer drafts its contract correctly, it will fail to limit its employees to the one-week-per-year minimum standards under the ESA. Many employment law disputes turn on termination clauses in employment contracts and, in many cases, such contracts are struck down.

Law protects workers from possible denial of ESA minimums

In a recent case, an Ontario court struck down an employment contract when it realized that the contract would not have guaranteed the employee to ESA minimums in a certain possible situation. Namely, the Divisional Court saw that, if the employee had changed positions within the organization or the organization itself had grown, the employee’s contract would not guarantee him his minimum notice entitlements under the ESA.

In doing so, the court demonstrated that termination clauses must guarantee employees their minimum notice entitlements in every possible scenario. In other words, an employment contract in Ontario must allow for no scenario in which an employee might be denied his or her rights under the ESA. If a court identifies some possible scenario might exist in which an employee might be denied his or her minimum notice entitlements under the ESA, it will strike down the employment contract and award that employee common law reasonable notice, his or her default right under Ontario employment law.

Rutledge v Canaan

In Rutledge v Canaan Construction Inc, 2020 ONSC 4246 (“Rutledge”), Ontario’s Divisional Court decided that an employee had been wrongfully dismissed after his employer laid him off and failed to provide him with his notice entitlements under the Employment Standards Act, 2000 (“ESA”). The court decided that the employee had been wrongfully dismissed based upon the fact that his employment contract contained a clause which disentitled him from his rights under the ESA. Namely, that clause stated that he was not entitled to notice of termination or termination pay upon dismissal. The Divisional Court heard Rutledge on June 26, 2020.

The employee in this case, Chris Rutledge, worked as a construction apprentice for Canaan Construction Inc., a construction industry organization. Notably, construction employees are excluded from certain rights under the ESA. Namely, construction employees in the construction industry are not entitled to any amount of notice of termination nor termination pay if dismissed.

The employment contract in Rutledge contained a clause which stated that the employee was not entitled to notice of termination or termination pay. In a sense, it appeared that the contract merely stated what was laid out in the ESA itself. This fact made the decision in Rutledge an interesting development in Ontario employment law. As well-stated by the court, “[H]ow can an employer be penalized for confirming in writing that an employee will not receive what he is not entitled to (at para 13)?” The court realized the termination clause was unenforceable for two reasons.

Why the termination clause was unenforceable

First, the court recognized a hypothetical situation in which the employee might have taken on a new role working for the employer, one in which his work was not construction-related. In other words, what if the employee had become an accountant or administrative assistant working for the same employer? In that hypothetical case, the employee would no longer be a “construction employee.” Despite the fact that the employee would continue to work for a “construction employer,” his hypothetical new status as a non-construction employee would entitle him to the ESA’s notice protections. The court had thus realized that the termination clause as written denied him his rights under the ESA and that the contract was therefore unenforceable.

Second, the court recognized that another problem would arise if the organization was to grow in size. Organizations that employ more than 50 employees or have a payroll of more than $2.5 million take on an additional duty under the ESA to pay all of their employees severance pay upon dismissal, including construction employees. The employee’s contract clearly disentitled him to severance pay if he was to be dismissed and thus the possibility that the organization might grow would automatically render him disentitled from his rights under the ESA.

Based upon these two hypothetical situations, the court realized that the termination clause was unenforceable and struck down the employment contract accordingly. The employee was awarded $9,530 in damages for wrongful dismissal plus costs.

Takeaways

Rutledge broadly demonstrates a point that has been reiterated time and time again in Ontario employment law. Namely, “Even a potential violation of the ESA, no matter how remote, should be unenforceable (at para 17).” This is an important point for Ontario employers to comprehend as common sense may sometimes lead employers to assume otherwise. The employer in Rutledge may very well have assumed its termination clause was merely reiterating the limits of the employee’s rights under the ESA. It may have even assumed its termination clause was drafted carefully and precisely.

Unfortunately, the employer in Rutledge determined the employee’s rights under the ESA based upon the role he held at the time that the contract was drafted. It did not take into account the ways in which its relationship with the employee may have changed over the years.

Interestingly, the employer displayed a lack of perspective of both the employee’s possible future roles as well as its own possible future growth as an opportunity. As a result, the contract failed to embody a key principle of Ontario employment law, that contracts must ensure that employees’ ESA rights are protected in all possible scenarios.

Accordingly, Ontario employers are encouraged to look beyond the present moment when drafting contracts. Contracts are not simply point-in-time references but instead are documents which control the rights and obligations of employers and employees throughout the length of their relationship. Employment contracts should take into account all future possibilities and ensure that, in all of those hypothetical scenarios, employees are guaranteed their rights under the ESA and, more broadly, under Ontario employment law.