Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029: Employers may not have “sole discretion” in terminating an employee without cause.
In recent years, employers have been dealt blow after blow as Ontario Courts continue to find ways to void termination provisions in employment contracts. Last month, the Ontario Superior Court of Justice continued this trend by finding that an employment contract was unenforceable because, among other reasons, it allowed the employer to terminate the employee’s employment in its “sole discretion” and “at any time”.
The employee, Karen Dufault, entered into a fixed-term employment contract of two years with the defendant employer, The Corporation of the Township of Ignance. The employer subsequently terminated her employment, without cause, two months into the employment relationship.
Ms. Dufault then brought an action against the Township for salary and benefits for the remaining term of the employment contract. She argued that the termination clauses in the employment contract violated the Employment Standards Act (“ESA”). Specifically, Ms. Dufault argued that:
- the “for cause” termination clause allowed for termination without notice in broader circumstances than permitted by the ESA;
- the “without cause” termination clause suggested that the employer could pay less payment in lieu of notice than would be required by the ESA; and
- the “without cause” termination clause opened the door to allow the employer to terminate employment in its “sole discretion” and “at any time”.
The Court accepted Ms. Dufault’s arguments and held that the employment contract was not enforceable because:
- the employment agreement would have allowed the employer to terminate the employment relationship “for cause” for reasons that did not meet the standards under the ESA for termination without notice;
- the employment agreement attempted to limit the payment in lieu of notice to “base salary”, which is less than the requirement amount pursuant to the
Finally, and perhaps most problematic of all for lawyers and employers is that the Court held that the termination “without cause” provision was invalid because it allowed the employer to terminate an employee in its “sole discretion” and “at any time”:
[46] Thirdly, the plaintiff submits that Article 4.02 misstates the ESA when it gives the employer “sole discretion” to terminate the employee’s employment at any time. I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee’s leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute.
The Court reasoned that this would allow an employer to terminate an employee even if they were returning from protected leave or due to reprisal for the employee exercising their legal rights.
As a result, Ms. Dufault was entitled to her salary and benefits for the remainder of the fixed term employment contract.
Takeaways
While it remains to be seen whether this decision will be appealed, the growing body of case law voiding termination provisions are becoming increasing strict. Employers and their lawyers should be mindful of these new developments and review their employment agreements regularly to determine whether their contracts require revisions for both new and existing employees.
A copy of the decision is linked here: Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029
The contents of this blog is not legal advice. If you would like your employment contract reviewed, contact our team of lawyers at Erudite Law LLP for a consultation.
