“CannonDesign maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal.”

In Rahman v Cannon Design Architecture, Justice Dunphy was tasked with deciding whether the above termination provision was legal. At issue was the use of the phrase “just cause for summary dismissal”, and the question of whether such a phrase is contrary to the Employment Standards Act (“ESA”). Under the ESA, dismissed employees are not entitled to termination or severance pay if they are “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”

According to the Ontario Court of Appeal in its Waksdale decision, the common law standard of just cause is actually easier to prove than the standard set out in the ESA. For employers whose contracts contain just cause provisions, this is a problem. Employers and employees in Ontario cannot contract out of the ESA – this means that whatever benefits are provided in employment contracts must be of greater or equal value as the benefits in the ESA. Just Cause termination provisions, by being easier to prove, provide a lesser benefit to employees than the wilful misconduct standard of the ESA and are therefore invalid. Where a contractual termination provision is invalid, the common law will apply, and no employer wants this.

Despite this well-established concept, Justice Dunphy held that the “just cause” provision was nevertheless valid. Respectfully, the reasons he used to arrive at this conclusion – one that is contrary to the Court of Appeal’s guidance – seem irrelevant to the analysis. As a result, his conclusion is likely wrong.

Factors Considered by Justice Dunphy: Irrelevant?

According to the Ontario Court of Appeal, the enforceability of termination clauses depend solely on the wording of the clause itself. It is only the wording of the clause that a judge is supposed to look at. However, Justice Dunphy relied on a number of different considerations in holding the “just cause” termination provision valid, including, among other things:

  • a) That the employee obtained independent legal advice prior to signing the contract;
  • b) That the employee negotiated an improved termination provision and did not object to the “just cause” language, despite having obtained competent legal advice;
  • c) That the employee was a woman of experience and sophistication, working in a senior role with high compensation; and,
  • d) That the agreement represented the mutual intention of the parties and was unambiguous.

Respectfully, these factors should not have been considered. They are not the test. Justice Dunphy should have looked to the language of the provision and decided its legality on that consideration alone. By considering this list of other factors, Justice Dunphy made a decision on irrelevant considerations.

A Temporary Win for Employers

This decision was a win for employers. Their termination clauses are often carefully crafted in order to limit their liability in the event they dismiss an employee, and this decision suggests that such termination clauses may remain enforceable even where the language contained within ought to nullify it. However, because the decision was likely wrongly decided, it may only be a temporary win. The decision is ripe for appeal. If that does happen, many employers may have to worry about the language they have used in their contracts.