A Future and Remote Violation of the Employment Standards Act is Enough to Render an Employment Agreement Unenforceable

In a recent wrongful dismissal case, the Ontario Superior Court of Justice held that a potential violation of the Ontario Employment Standards Act, 2000 (the “ESA”), no matter how remote, will render a termination clause in an employment agreement void and unenforceable.

In this case, the employee was a construction employee employed by Canaan since 2012.

On November 10, 2015, he signed an employment agreement with Canaan, which contained a termination provision that limited his entitlement to the minimum notice upon termination as set out in the ESA. The termination provision did not comment on severance pay or benefits continuation. It further indicated that given that the employee was a construction employee, he was not entitled to any notice or pay in lieu of notice upon termination.

On October 10, 2017, the employee was placed on a temporary layoff. He was never recalled back to work and he was not provided with any pay in lieu of notice.

A few months later, in 2018, the employee commenced an action seeking damages for wrongful dismissal.

Canaan argued that the employee was not entitled to damages for wrongful dismissal as: 1) the employment agreement absolved Canaan from any requirement to give any notice of the lay-off, or pay in lieu of notice; and 2) given that the employee was a construction employee, Canaan had no obligation under the ESA to give notice or termination pay in lieu thereof.

Under the ESA, construction employees are not entitled to notice of termination or termination pay. Throughout his employment with Canaan, the employee was employed as a construction employee.

The Ontario Superior of Justice disagreed with Canaan and concluded that the employee was entitled to notice of termination or pay in lieu thereof, and that such notice was not limited by the ESA.  In other words, the employee was entitled to reasonable notice of termination at common-law.

The Ontario Superior Court of Justice held that the termination provision in the employment agreement potentially violated the ESA in the following two ways:

1. If the employee’s position changed to something other than a construction employee in the future, i.e. a position not exempt from termination pay, the termination provision would be unenforceable as pursuant to his employment agreement he was not entitled to benefits during the statutory notice upon termination.

2. If Canaan grew in size, employed more than 50 employees and discontinued its business or had a payroll of more than 2.5 million, the employee would be entitled to severance pay (irrespective of his job description). The termination provision of his employment agreement disentitled him to this future benefit.

These two potential violations of the ESA rendered the termination provision unenforceable.

This decision is important as employers are now required to contemplate the future of its business and its employees in a way that addresses future compliance with the minimum standards prescribed by the ESA.  Just because an employee does not have benefits, or, just because a business is small and therefore is not obliged to provide statutory severance pay, is no reason to not contemplate these statutory concepts in an employment agreement. This decision once again is a cautionary tale to have employment agreements reviewed periodically by legal counsel.

If you have any questions about the way in which this decision will impact your existing employment agreements, please contact a member of our team.