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Canada: Employment Contract Termination Clauses

By - - Employment contracts, Employment Law

Ontario’s Superior Court has found in favour of the employee in a number of recent cases involving the express termination provisions in their employment contracts.

The Latest Case

The latest case turned on some complex and finely tuned legal arguments including references to binding former decisions, which we won’t bore you with. 

The employment contract clause in question gave the employer the right to terminate the employment “..at any time, without just cause..”.

Another clause gave the employer the right to terminate immediately “for just cause” and included some vague terms to illustrate what conduct would count as a “just cause”.

The Judgement

The Court found that the “without cause” provision was unenforceable, particularly in light of the use of the words “at any time”, as it misapplied a provision of the Employment Standards Act (2000).

As Ontario courts do not normally apply the “blue pencil” rule to employment contracts (i.e. the unenforceability of one clause or term does not automatically damage another otherwise valid term) , the “with clause” provision would therefore also fail.

Nevertheless, the judge said that it failed anyway because in providing a contractual standard for “just cause” (rather than just relying on the statutory one) it had failed to provide any detail or explanation as to that standard, or the difference between the contractual and statutory standards.    

Points to Note

The legal issues here are still being argued over in Canada’s courts but employers who want to avoid unnecessary headaches, should:

  • Avoid phrases like “at any time” or “sole discretion” or “for any reason” in the employer termination provisions of employment contracts;
  • Remember that the failure of one provision may render other terms unenforceable;
  • As this area of law is currently in motion, keep an eye on it and regularly review their employment contracts and templates.

This is a high level general update only. Legal advice should be obtained on specific circumstances.
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