Employers: Review your Employment Contracts to ensure they do not run afoul of Default and Waksdale

Have D&DCPD review your contracts before you find out you cannot rely on them.

A recent decision by the Ontario Superior Court of Justice underscores the critical importance of updating employment contracts to ensure compliance with the Employment Standards Act, 2000 ("ESA"). In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 ("Dufault"), the Court struck down a termination provision that allowed the employer to terminate an employee’s employment in its "sole discretion… at any time." Following the reasoning in Waksdale v. Swegon North America Inc., 2020 ONCA 391 ("Waksdale") this, along with other deficiencies, rendered the termination clause unenforceable, resulting in significant liability for the employer.

These decisions serve as a crucial reminder that employment contract language that may have been enforceable in the past may no longer withstand legal scrutiny. Employers should act now and contact D&DCPD to avoid costly litigation and liability by proactively updating their employment agreements.

Key Takeaways from Dufault and Waksdale

1. Termination Provisions Must Align with ESA Requirements – The Court reaffirmed the principle established in Waksdale, that if any part of a termination clause contravenes the ESA, the entire clause is unenforceable.

2. Provisions Allowing Termination "At Any Time" Are Problematic – The Court found that language allowing an employer to terminate employment "at any time" conflicts with the ESA’s job protections, particularly regarding statutory leaves of absence or protections against reprisals.

3. Compensation Beyond Base Salary Must Be Considered – The ESA defines "wages" broadly, including various forms of compensation beyond base salary. Any attempt to limit termination entitlements solely to base salary may be unenforceable.

The Risk for Employers

In Dufault, the employer’s termination provisions were struck down, leading to the employee receiving nearly two years’ pay – the entire remaining term of their fixed-term contract. This decision highlights the risk of outdated employment agreements containing clauses that could expose employers to substantial liability. Waksdale upheld the ideal wherein courts will favor an interpretation of the ESA that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible”, over an interpretation that does not do so.

What Employers Should Do

• Ensure that any new draft contract does not leave room for interpretation - Employers who do not currently have employment contracts should ensure that when reviewing a drat contract, the wording of the clauses conform to legislation leaving no ambiguity.

• Review and Revise Employment Contracts – Contact D&DCPD to assess whether existing termination clauses include problematic language, particularly references to termination at the employer’s "sole discretion."

• Ensure Compliance with the ESA – Any contractual provision that does not fully comply with the ESA may be found unenforceable, potentially resulting in significant financial consequences.

• Consult with D&DCPD – Given the evolving case law, employers should seek guidance to ensure that their employment agreements remain valid and enforceable under current jurisprudence.

What does an enforceable part of a contract mean?  Is the entire contract void or just the termination clause?  How do I update my contracts and ensure they are now enforceable?  For these and any other questions, visit our website at www.dndcpd.com or call us at 613-866-8637 immediately and we can review and update your contracts to minimize the risk of future liability.