Employers Beware – Potential Future Violation of ESA Could Render Employment Agreement Unenforceable

In a recent decision, the Ontario Superior Court of Justice found that a termination provision was unenforceable because it would violate Ontario’s Employment Standards Act if the employee’s role changed or the employer grew in size.

Facts

Chris Rutledge was a construction worker with Canaan Construction. Ontario’s employment standards legislation provides that “construction employees” are not entitled to notice or pay in lieu of notice of termination. Upon commencement of the last period of continuous employment as an apprentice at Canaan, Mr. Rutledge signed an employment agreement which contained the following termination provision:

Termination of Employment

… The Employee may be terminated at any time without cause upon being given the minimum periods of notice as set out in the Employment Standards Act, or by being paid salary in lieu of such notice or as may otherwise be required by applicable legislation. The Employee acknowledges that pursuant to the Employment Standards Act they are not entitled to any notice or time in lieu thereof due to the nature of their job and as such they are entitle [sic] to absolutely no notice or pay and benefits in lieu thereof upon termination. … [emphasis added]

The termination provisions set for the above, represent all severance pay entitlement, notice of termination or termination in lieu thereof, salary, bonuses, vacation pay and other remuneration and benefits payable or otherwise provided to the Employee in relation to the termination of the Employee regardless of cause or circumstances.

Two years later, Mr. Rutledge was laid off due to “shortage of work/end of contract or season”. He did not receive notice or pay in lieu of notice. He later brought an action in Small Claims Court for wrongful dismissal. Canaan argued that the above termination provision in Mr. Rutledge’s employment agreement absolved it of any responsibility to give notice/pay in lieu of notice and further that it was not required to give Mr. Rutledge notice because he was a “construction employee”.

Small Claims Decision

The Small Claims Court held that the termination provision was void because it purported to contract out of the obligation to pay benefits during the statutory notice period and awarded Mr. Rutledge 9.5 weeks’ pay in lieu of reasonable notice.

Canaan appealed the Small Claims Court’s decision to the Ontario Superior Court of Justice.

Ontario Superior Court Decision

The Court noted that an employment agreement is only enforceable if it complies with the minimums set out in the employment standards legislation, and that if it does not the employee is entitled to reasonable notice at common law. The Court further noted that if an employee has two or more roles in their employment and only one is not protected by employment standards legislation, the employee will continue to be protected with respect to that other role. The court found that as a “construction employee”, the only employment standards under the legislation that did not apply to Mr. Rutledge were notice of termination (ss. 54-60) and termination pay (ss. 61-62).

The Court found that an employee cannot contract out of a protected employment standard under the ESA even if it does not yet apply to them and that for a termination provision to be unenforceable, it was enough that it would potentially violate the ESA at any date after hiring. The Court found the employment contract purported to contract out of employment standards legislation in at least two ways:

1. Even though Mr. Rutledge’s employment agreement stated that he was employed as an apprentice in the construction industry the court found the provision to be unenforceable as “it does not explicitly state that this applies only to him while occupied as a construction employee and that it would be of no force or effect if his position changed”.

2. As a “construction employee” Mr. Rutledge was still entitled to the severance amounts set out in ss. 63-66 of the Ontario Employment Standards (provisions which set out the termination pay requirements for companies with 50+ employees or payrolls of $2.5 million). As such, the Court found that  “If Canaan grew in size, employing more than 50 employees and then discontinued its business, or else had a payroll more than $2.5 million, Rutledge would be entitled to severance pay, irrespective of his job description” and that  “the Employment Contract clearly disentitles Rutledge to these employment standards”.

The Superior Court therefore dismissed Canaan’s appeal and upheld the Small Claims Court’s decision.

Implications for Employers

The Ontario Superior Court’s decision in Rutledge highlights how important it is for employers to regularly review their employment agreements to ensure that they are up to date with the current legal developments. According to the Court’s decision in Rutledge, even if an employment standard does not currently apply to an employee, an employer must consider even the remote possibility of the employment standard in question potentially applying in the future. In drafting employment agreements, employers should thus consider present circumstances as well as future hypothetical circumstances relating to an employee’s role.

This update was authored by Neal Parker. Looking for more information regarding similar situations? Contact Neal at [email protected] or anyone else listed on the authors page.