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Canada: The Termination Clause Saga Continues

In a recent decision, Rossman v. Canadian Solar Inc., 2019 ONCA 992, the Court of Appeal for Ontario (“ONCA”) held that a termination clause containing language aimed to “save” or “cure” the provision was insufficient because the termination clause otherwise attempted to contract out of the minimum standards set out in Ontario’s Employment Standards Act, 2000 (“ESA”). The ONCA decided that the termination clause was void and of no effect.

In 2010, Noah Rossman was told that his employment was being transferred from DAI Inc. to Canadian Solar Solutions Inc. (“CSSI”), a company that worked closely with his former employer. Accordingly, in May 2010, and later in 2012, Mr. Rossman entered into two (2) new employment contracts with CSSI as a regional sales manager and project manager, respectively.

Mr. Rossman’s employment agreement included a termination clause. Although the clause stated that Mr. Rossman would receive “minimum standard requirements” upon termination (the “Saving Provision”), it also limited entitlement benefits to four weeks upon termination (the “Benefit Provision”). The ESA provides that notice of termination may continue for up to eight (8) weeks and benefits must be continued for that period of time.

In 2014, after three (3) years of employment, Mr. Rossman’s employment was terminated without cause. At the time of termination, he was thirty-three (33) years old earning an annual salary of $82,500.00 with benefits and a bonus plan. Shortly after, Mr. Rossman commenced an action for wrongful dismissal.

At first instance, on a motion for summary judgment, Justice Labrosse held that the termination clause was void and unenforceable for two reasons: (i) the Benefit Provision of the termination clause was either ambiguous or an attempt to contract out of the minimum standards under the ESA by limiting benefits to four weeks regardless of the term of employment; and (ii) the Saving Provision did not “cure” the rest of the termination clause. As such, Justice Labrosse granted partial summary judgment in favour of Mr. Rossman.

CSSI appealed. In December 2019, the ONCA upheld Justice Labrosse’s decision and agreed the termination clause was either void at the outset, or, alternatively, contained a genuine ambiguity which rendered it void.

The ONCA reviewed the seminal cases on contractual interpretation in employment law reinforcing the importance of work, vulnerability of employees, and the remedial nature of the ESA which led the Court to affirm that termination clauses that can be interpreted in more than one way should be interpreted with a view that gives the greater benefit to the employee. Turning to the termination clause issue, the Court found that the termination clause was void at the outset since the Benefit Provision contravened the notice provisions of the ESA.

In addition, the Court held that the termination clause was ambiguous and could not be “cured” by the Saving Provision since the Benefit Provision was not future facing and did not express an intention to conform to the ESA. Lastly, the Court noted policy reasons for its decision stating that allowing employers to contract out of the ESA exploits vulnerable employees who hold unequal bargaining power in contract negotiations, and flouts the purpose of the statute.

While this decision arguably marks a shift from the ONCA’s previous employer-friendly position on “saving provisions”, it is consistent in its reasoning that termination provisions must not attempt to contract out of the ESA.

 

We would like to thank Janeta Zurakowski for contributing this article. Janeta’s original full-length article may be accessed here.