Unenforceable Termination Clauses within an Employment Contract

Application of the Law to Dufault’s Employment Contract

Given the above rulings on contractual interpretation for employment contracts, the Court then applied the law to the facts in Dufault. The employment contract had multiple termination clauses, including a “for cause” termination clause purporting to allow the employer to terminate Ms. Dufault’s employment “at any time and without notice or pay in lieu of notice for cause.” The Court noted this clause of the employment agreement alone already violates the ESA, as it attempts to withhold termination and severance pay when the employee is dismissed for cause, whereas the ESA provides for payment. In this respect, this termination clause was similar to the clause found to be invalid in Waksdale. The standard for wilful misconduct under the ESA is a higher standard than that for just cause, hence attempting to contract out of notice for just cause termination violates the ESA. Consequently, the termination clause was unenforceable.

In addition to the termination clause for just cause being illegal, the Court also held that the without cause termination clause was likewise illegal, and therefore unenforceable. The without-cause termination provision purported to provide the worker with payment “of the employee’s base salary” for the notice period required by the Employment Standards Act. However, the Court noted that the ESA provides that wages provided during the notice period cannot be reduced and that the employee is entitled to receive all “regular wages”, not just base salary. According to the Court, “regular wages” include things like vacation pay, sick days, and any other paid leave periods established either by statute or by contract.

Novel Interpretation of the Employment Contract

Finally, the Court also provided a particularly novel interpretation of the without-cause termination provision. In particular, the clause gave the employer “sole discretion” to terminate the worker without cause “at any time.” The Court stated that this clause violated provisions of the ESA which prevents termination of employment on the conclusion of a leave of absence or in reprisal for attempting to exercise a right under the ESA. The Court held the right of the employer to dismiss workers is not absolute given the limitations outlined in the ESA. Consequently, the contractual language of the termination clause was yet again in violation of the ESA, and therefore unenforceable. This aspect of the ruling in particular expands the scope of contractual interpretation immensely, safeguarding workers and their rights against illegal contractual construction.

Consequences of Invalid Termination Clauses

In conclusion, the Court found the termination provisions unenforceable, hence Ms. Dufault was entitled to damages. As she was under a fixed-term contract, she was entitled to be paid the balance of the contract, in this case, 101 weeks’ compensation. Had she been under an indefinite employment contract, she would have been entitled to common law reasonable notice, which provides for notice far in excess of the notice periods under the ESA. There are serious consequences to employers relying upon illegal employment contracts, and the Court’s expansive definition of illegality helps workers avoid their rights being undercut by employers.