Employers need to be careful when drafting provisions in their contracts. Provincially regulated employers in Ontario can use contract provisions to limit some of the common law rights and benefits of their employees. However, employers cannot create provisions that violate the Employment Standards Act (ESA).
Employers must regularly review the contracts that they offer. Contracts with termination provisions are ripe for review. Recent court cases have demonstrated how a provision that was not relied on but violates the ESA can void a valid termination provision.
The Ontario Court of Appeal's 2020 decision in Waksdale v. Swegon North America Inc (Waksdale) states that contracts need to be interpreted “as a whole and not on a piecemeal basis.” (para 10) In that case, the council for the employer and the council for the employee agreed that the termination with cause provision was illegal under the ESA and the termination provision with notice was legal. The employer fired the employee on a without-cause basis and thus did not rely on the illegal termination with cause provision. The Court of Appeal stated that the non-reliance on the illegal is irrelevant, as the contract needs to be interpreted as a whole. Due to the violation of the ESA, the Court of Appeal awarded the employee a longer common law notice period.
The decision in Waksdale has been affecting lower court decisions. Recently, the Ontario Superior Court, in Henderson v. Slavkin (Henderson), upheld the concept that non-reliance on a provision is irrelevant. In Henderson, the provision on termination without notice, which the employer relied on, was valid under the ESA. However, the conflict of interest provision and the confidential information provisions, which the employer never relied on, were found to be unclear and thus a violation of the ESA. The Superior Court emphasized that employers cannot contract out of the ESA and just because they did not rely on the illegal provisions is irrelevant. Therefore, the court chose to award the higher common law notice instead of relying on the termination without notice provision, even though that provision was compliant with the ESA.
What can employers do to keep their contracts valid?
To keep their contracts valid, employers should frequently visit an employment lawyer to update their common contract provisions. One illegal provision taints the whole contract. It is suggested that larger employers should review their contracts with employment lawyers once every six months.
Currently, Ontario is in a state of flux when it comes to what provisions are valid under the ESA. Non-competition covenants have been under a microscope in Ontario since the government expanded restrictions on their use and scope. Due to these new restrictions, provincially regulated employers should also pay attention to non-solicitation and confidentiality provisions, as their wording can also violate the ESA. Further, the Supreme Court of Canada's decision in Uber Technologies Inc. v. Heller means that many arbitration provisions may be invalid.
Suzanne Desrosiers Professional Corporation provides legal advice on contract provisions. You can contact us to determine whether your current contract provisions are legal under the current interpretation of the ESA. You can reach us by calling us at 705-268-6492.