Case In Point
Ontario Court of Appeal Dismisses Appeal in Dufault, Upholds Finding That “For Cause” Language in Termination Provision Contravened ESA
Date: December 20, 2024
In Dufault v. Ignace (Township), the Ontario Court of Appeal reinforced and applied the principle established in Waksdale v. Swegon North America Inc. (Waksdale) that, when interpreting an employment agreement, all termination provisions must be read together and the invalidity of one termination provision renders all termination provisions void and unenforceable. In rendering its decision, the Court of Appeal declined to rule on the issue of whether a termination provision is void and unenforceable because it says that an employer may terminate an employee in the employer’s “sole discretion” and “at any time.”
Procedural History
In the lower court decision of Dufault v. The Corporation of the Township of Ignace—previously discussed in our Case in Point, Employment Termination Clauses Under Scrutiny – The Latest Update—the motion judge found that the termination provisions of the fixed-term employment contract failed to comply with the Employment Standards Act, 2000 (ESA). The provisions were deemed unenforceable because, among other reasons, they permitted the employer to terminate the employee’s employment without cause in the employer’s “sole discretion” and “at any time.” Consequently, the Court held that the plaintiff, Ms. Dufault, was entitled to damages equivalent to the balance owing under her contract.
The “for cause” termination provisions stated:
4.01 The Township may terminate this Agreement and terminate the Employee’s employment at any time and without notice or pay in lieu of notice for cause. If this Agreement and the Employee’s employment is terminated with cause, no further payments of any nature, including but not limited to, damages are payable to the Employee, except as otherwise specifically provided for herein and the Township’s obligations under this agreement shall cease at that time. For the purposes of this agreement, “cause” shall include but is not limited to the following:
(i) upon the failure of the Employee to perform the services as hereinbefore specified without written approval of Municipal Council and such failure shall be considered cause and this Agreement and the Employee’s employment terminates immediately
(ii) in the event of acts of wilful negligence or disobedience by the Employee not condoned by the Township or resulting in injury or damages to the Township, such acts shall be considered cause and this Agreement and the Employee’s employment terminates immediately without further notice [emphasis added]
The termination for cause provision was found by the motion judge to improperly allow the employer to terminate the employee for conduct falling short of the ESA “wilful misconduct” standard without providing minimum statutory notice (and severance, if applicable) entitlements. The Court awarded Ms. Dufault $157,071.57 in damages.
Court of Appeal Decision
The Court of Appeal rendered its decision on December 19, 2024.
The Court’s analysis centered on two critical deficiencies in the employment contract’s “for cause” termination clause. First, the contract definition of cause—“failure of the Employee to perform the services”—established a lower standard for termination than the “wilful misconduct” threshold required by the ESA. Second, the open-ended language stating that cause “shall include but is not limited to” certain behaviours effectively permitted the employer to terminate employment without notice for reasons beyond those permitted by the ESA.
The Court explained that these provisions violated the ESA by purporting to deny notice or pay in lieu of notice in circumstances that did not meet the high standard of wilful misconduct required by the legislation. Citing Waksdale, the Court affirmed that when one termination provision violates ESA minimum standards, all termination provisions in the contract become invalid. This rendered both the “for cause” and “without cause” termination clauses unenforceable, regardless of whether the “without cause” provision independently complied with the ESA, and irrespective of Ms. Dufault’s termination being without cause.
The Court noted that, as a three-judge panel, it was bound by Waksdale and could not reconsider that precedent, despite the Township’s request. The Court declined to address the validity of the “without cause” provision, concluding:
[25] … it is not necessary to consider the appellant’s arguments that the motion judge erred in finding the “without cause” termination clause also unenforceable as contrary to the ESA, and we expressly do not rule on that submission. The appellant argued that the motion judge’s findings in relation to the “without cause” termination clause may affect other employment contracts. In our view, resolution of the issues the appellant raises regarding the “without cause” termination clause should be left to an appeal where it would directly affect the outcome.
As the “for cause” termination provisions were found to be unenforceable, the Court confirmed Ms. Dufault’s entitlement to damages calculated based on the full term of her fixed-term employment contract.
Key Takeaways for Employers
The Court of Appeal’s decision underscores the critical importance of employers regularly reviewing their employment agreements, and particularly the termination provisions therein, to ensure continued enforceability and compliance with the ESA.
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