The Devil Is In The Details
Employment contract drafting often seems like a straightforward exercise. Change the names, tweak some numbers and off you go! In many cases, particularly for lower wage positions, this is the case.
In other situations, more careful drafting by a trained eye is necessary.
Termination clauses in contracts are a good example. Many employers will adjust termination language, believing that the changes are straightforward. However, if not careful, such changes can invalidate the clause entirely, resulting in significant employer liability.
A recent Ontario Superior Court decision shows some of the hidden risks with employment agreements. In that case, a long-term receptionist was let go when her clinic shut down. An inadvertent defect in her employment contract caused the employer to lose the benefit of what it thought was a cost-effective termination clause.
In Henderson v. Slavkin et al., 2022 ONSC 2964, Rose Henderson was a 30-year receptionist for Drs. David Slavkin and Melvyn Kellner at their oral surgery clinic in Bolton. Both were senior practitioners, and, by all accounts, Ms. Henderson was a stellar employee.
In 2015, in anticipation of their retirement, the surgeons offered all employees a written employment contract containing a termination clause that limited the employer to the minimum standard for notice under the Employment Standards Act, 2000 (ESA).
Ms. Henderson accepted the contract.
The contract also contained sections about conflicts of interest and confidential information. Both sections had wording stating that a breach would result in “cause for termination without notice or compensation in lieu of notice”.
Following the closure, Ms. Henderson obtained legal advice and claimed that the termination clause was invalid. Her argument, in part, was that the conflict of interest and confidential information clauses purported to give the clinic the right to dismiss her without notice or termination pay for conduct that was not wilfully or intentionally wrong, factors which must be present to justify a denial of statutory entitlements.
The Court reviewed the recent spate of Court of Appeal cases analyzing employment contracts and held that “where an employment agreement is not consistent with the ESA, it becomes invalid…and the terminated employee becomes entitled to common law damages.”
The Court found that the Clinic’s termination clause was in line with the ESA. However, the conflict of interest and confidentiality clauses purporting to terminate with “cause” in the event of a breach were not compliant with the ESA. As noted, only wilful misconduct exempts the employer’s obligation to provide ESA termination (or severance) pay. “Cause” or “just cause” is a lower standard than wilful misconduct that only applies to exempt the requirement to provide reasonable notice.
As a result, the court invalidated the employer’s otherwise ESA compliant termination clause.
Ms. Henderson was ultimately awarded 18-months’ compensation, less a 3-month deduction for unreasonable mitigation efforts. Notably, the Court declined to reduce her receipt of the Canadian Emergency Response Benefit.
Henderson is a curious decision that leaves some gaps in terms of the Court’s analysis. Some lawyers will argue, based on Henderson, that any contractual interpretation that could be a violation of minimum ESA standards will invalidate the entire agreement. That is and ought not to be the case.
A “severability” clause, reflected in many contracts, may have protected the employer in this case. It’s not clear if there was such a clause or if the court considered it. This contractual term allows courts to invalidate discrete sections of a contract without affecting other, valid parts. In Henderson, a severability clause may have allowed the court to strike out the offensive provisions while leaving the valid termination clause intact.
In any event, the message from Henderson is clear. As an employer you should have your employment contracts reviewed regularly from top to bottom. A badly-worded contract, even if inadvertent, does not serve the protective purpose that is intended by it. Contracts should be customized for each employee, reviewed by legal counsel, and then re-reviewed and updated at least annually to ensure that they are in line with the current state of the law.
We help with employment contracts every single day, and are skilled in drafting contracts that are tailored to your business and will withstand court scrutiny. Contact us today to discuss further.