In Ontario, courts are carefully scrutinizing termination clauses in employment contracts. Based on recent cases, if even one part of a termination clause violates the Employment Standards Act (ESA) or Regulation 288/01 to the ESA, the entire termination clause cannot be enforced. It does not matter whether you used or intended to use the clause that violates the ESA or not.

These cases limiting the applicability of termination clauses in employment contracts should be very concerning for those who provide their employees with fixed-term employment contracts. We have a blog on the dangers of fixed-term contracts. As noted in that blog, if a fixed-term employment contract ends early and the termination provision is not enforceable, then the employer will have to pay out the remaining amount of the fixed-term contract. In the recent decision, Dufault v The Corporation of the Township of Ignace (2024 ONSC 1029) the employer learnt this lesson the hard way.

Dufault v The Corporation of the Township of Ignace (2024 ONSC 1029)

In Dufault v The Corporation of the Township of Ignace (Dufault), Karen Dufault worked as a Youth Engagement Coordinator for the Town of Ignace. They agreed to a fixed-term employment contract beginning on November 24, 2022, and ending on December 31, 2024. On January 26, 2023, Ms. Dufault was terminated effective immediately on a without cause basis. The town provided Ms. Dufault with two weeks of pay in lieu of notice and continued her benefits for two weeks, relying on the without cause termination provision in the fixed-term employment contract. Ms. Dufault sued the town for the remainder of her fixed-term contract.

The judge found that the termination provisions were not enforceable. The court noted that its analysis of the termination clause needs to consider the wording at the time when the contract was signed and not at the time of dismissal. It noted that the termination clause was invalid due to the use of the term of “for cause” as the ESA and its regulations do not refer to “for cause.” This implies that the termination was being considered in a common law context. The for cause termination clause also exceeded the extent that Regulation 288/01 to the ESA permits employers to terminate without providing notice with the judge finding that the “failure to perform services” is not the same as wilful misconduct. The judge also found that the without cause termination provision was invalid. The judge noted that offering weeks of pay based on the base salary is less than offering weeks of pay based on the regular wages, as required by the ESA. The employer also noted that the without cause termination clause ran afoul of the ESA by stating that the employer can “at any time” terminate the employee, as the employer’s right to terminate is not absolute, such as in cases of reprisal where the employee tried to claim an ESA right. Since the termination provisions were invalid, the employee was entitled to the balance of the fixed-term contract, which the judge calculated to be $157,071.57.

Takeaways from the Dufault decision

The ultimate decision in Dufault is not surprising. Courts have been carefully scrutinizing termination clauses and invalidating such clauses if they are not compliant with the ESA. Based on past decisions in the last couple of years, it is not surprising that the termination clause was found to be invalid. It is also not surprising that the employer had to pay out the balance of the fixed-term contract. It is well established by courts that employers who terminate an employee without cause must pay out the remainder of the fixed-term contract.

What is novel about this case is the judge’s comment that the use of the term “at any time” to terminate the employee is contrary to the ESA due to certain circumstances where an employer does not have discretion to terminate an employee. Employers should be aware of this, as such language may be in their employee’s employment contract. With decisions changing what is an enforceable termination clause, employers should consider reviewing their employment agreements often.

How Suzanne Desrosiers Professional Corporation can help

At Suzanne Desrosiers Professional Corporation we can help both employers and employees. With recently terminated employees, we can review your employment contract and determine whether you are entitled to more than what is provided in the termination agreement. With employers, we can review your employment contracts and help create a more enforceable termination clause. To speak to one of our employment lawyers, please call us at 705-268-6492 or email us at info@sdlawtimmins.com.