Ontario Court, in Dufault case, strikes down termination without cause section for using the phrases “sole discretion” and “at any time”

In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, the Ontario Superior Court considered a new argument regarding the validity of a termination clause, in the context of a fixed term employment contract. 

The employee, Ms. Dufault, started her employment with the Township in October 2021.  She accepted a new position in January 2022.  In November 2022, she signed a new fixed-term contract with an end date in December 2024.  Ms. Dufault was terminated, without cause, in January 2023.

Ms. Dufault argued the termination clause was invalid for several reasons, including:

• Ms. Dufault argued the termination “for cause” section (4.01) breached the Employment Standards Act (ESA) because it allowed for termination without notice in broader circumstances than permitted by the ESA.
• Ms. Dufault argued the termination “without cause” section (4.02) breached the ESA because it suggested less payment in lieu of notice than would be required by the ESA. 
• Ms. Dufault argued the termination “without cause” section (4.02) breached the ESA because it said the employer could terminate the employee in its “sole discretion” and “at any time” (even though the ESA prohibits termination in certain circumstances).   

The Court accepted Ms. Dufault’s arguments and decided the termination clauses were not enforceable for a few reasons.

First, the Court held the termination without notice (or payment in lieu) clause was problematic because it allowed for this if the employer had “cause”, but the ESA in Ontario has a higher threshold for employers to terminate without notice or payment in lieu. 

Second, the Court held the termination without cause section was invalid because it allowed for less than the required amount of payment in lieu of notice.  Specifically, the clause attempted to limit the payment to “base salary”. 

Third, the Court held the termination without cause section was invalid because it suggested the employer could terminate the employee in its “sole discretion” and “at any time”.  Specifically, the reasoning is quoted here:

[46] Thirdly, the plaintiff submits that Article 4.02 misstates the ESA when it gives the employer “sole discretion” to terminate the employee’s employment at any time. I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee’s leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute.

This appears to be a new reason for concluding that a termination clause is invalid.   

The Court held that, since the termination clauses were not valid, the employer had to provide payment for 101 weeks (the balance of the fixed term contract) to Ms. Dufault.   

It remains to be seen whether this case will be appealed, but we will monitor this. 

Takeaways

This case is an example of how lawyers for employees continue advancing new arguments to challenge the enforceability of termination clauses and seek larger severance awards.  In this case, the employee was successful.  Due to decisions like this, it is important for employers to review their employment contracts (and termination clauses specifically) with their employment lawyer on a regular basis. 

This case is also another example of why fixed term contracts are risky and often should be avoided.

Linked here is a copy of the decision.