“Saving Clause” Does Not Save Illegal Contract

Claim Constructive Dismissal Lawyer

A recent decision of the Ontario Superior Court, Campbell-Givons v. Humber River Hospital, like many others over the past year, involved an employee who had been fired pursuant to a “just cause” termination provision. As we have seen, employment contracts that allow for the termination of employees for “just cause” have frequently been found unenforceable (although not always) for violating the Employment Standards Act, which requires a higher standard of misconduct on behalf of an employee than the “just cause” standard implies.

Notably, this case considers the effect of a saving clause on the enforceability of “just cause” termination provisions, and provides further comment on whether or not courts should consider the sophistication of the parties in determining if an otherwise invalid termination provision should be enforced nonetheless.

Basic Facts

The employee in this case was 61 years old at the time of her termination. She worked as a Senior Labour Relations Specialist at a Toronto public hospital – a position she held for only 19 months. Upon termination, the employer paid the employee three weeks’ pay in lieu of notice, which was all they owed under the employment contract. However, there was one major problem for the employer: the termination provision they relied on addressed both termination “for cause” and termination “without cause.”

“Just Cause” Termination Provision

In the employee’s view, the “for cause” portion of the termination provision violated the Employment Standards Act. The case law is clear that the circumstances in which employers are able to terminate employees without notice under the ESA are much narrower than the common law standard of just cause would permit. Under the common law standard, a wide range of employee misconduct may disentitle them from reasonable notice under common law, but the same conduct would not be sufficient to deprive them of their entitlements under the ESA. That is essentially what makes “just cause” termination provisions contrary to law.

The Ontario Court of Appeal has also held that where termination provisions are found to be illegal, for example because they permit summary dismissal for “just cause”, such an illegal provision cannot be excised from the overall termination clause. For that reason, if the “with cause” provision is illegal, so is the “without cause” provision. In effect, the entire termination clause becomes unenforceable.

Ultimately, the Court found that the employee was right: the termination provision did indeed violate the ESA.

The “Saving” Provision?

In this case, the employer attempted to save their termination clause from being found unenforceable by pointing to the following language contained within:

“At all times the Employee will receive all employment standards entitlements owing to her in accordance with the Ontario Employment Standards Act, 2000.”

In the employer’s view, the above represented a “guarantee” in the termination clause that the employee would always and inevitably receive their ESA entitlements. Therefore, even if the termination provision violated the ESA when viewed in isolation, the employee would not be prejudiced because of this guarantee.

The Court was not persuaded. In their view, saving clauses such as this present a worrisome danger: that employers may draft termination provisions they know to be unenforceable, expecting that dismissed employees will accept them as so, and then protecting themselves with a saving clause in the event an employee actually challenges the termination provision. Courts do not want to allow employers to mislead employees, and that appears to be the practical effect of saving clauses. Ultimately, the Court found the termination provision unenforceable, and held that the “saving” clause had no effect on that determination.

Employee Sophistication

Recent jurisprudence has considered whether or not the sophistication of employees should be taken into account when determining the enforceability of termination provisions. We have discussed this in an earlier blog post. On this point, the Court here commented:

“It is also problematic, in my opinion, to engage in a detailed analysis about the level of sophistication of an employee and whether or not they had time and opportunity to obtain legal advice. A termination clause cannot comply with the ESA for some employees but violate the ESA for others. It either violates the ESA or does not, and is either enforceable or not. It is a straightforward matter for an employer to incorporate clauses in an employment agreement that comply with ESA standards, and when that is not done the court should not be asked to rewrite the language of the termination provisions to achieve compliance.”

Given the current jurisprudential disagreement currently existing on this point, it will be interesting to see how the courts determine this issue moving forward.

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