Canadian Employment Law Today

Canadian HR Reporter, 2021 4 Termination provision done in by 'what if?' THE TERMINATION provision in an On- tario worker's employment contract has been ruled unenforceable by the Ontario Superior Court of Justice because the pro- vision could potentially deny the worker notice of termination and severance pay in the event of changes to the worker's job or company growth in the future — despite the fact that the worker's current job made him exempt from such entitlements. Chris Rutledge was a construction em - ployee at Canaan Construction, a construc- tion contractor in Guelph, Ont. Upon the commencement of his last continuous period of employment as an apprentice at Canaan, he signed an employment agree- ment that included the following termina- tion provision: "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 legis - lation. 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 abso - lutely no notice or pay and benefits in lieu thereof upon termination. "The termination provisions set force above, represent all severance pay entitle- ment, notice of termination or termination in lieu thereof, salary, bonuses, vacation pay and other remuneration and benefits pay- able or otherwise provided to the Employee in relation to the termination of the Em- ployee regardless of cause or circumstances." Two years later, Rutledge was temporar- ily laid off due to "shortage of work/end of contract or season." He did not receive a layoff notice or pay in lieu of notice. Two months following his layoff, Rutledge found alternate employment. Rutledge brought a claim against Ca - naan in Small Claims Court for damages for wrongful dismissal. Canaan's defence was that: Rutledge's employment contract absolved it from any requirement to give notice of the layoff or pay in lieu of notice; and Canaan was not obliged under the Employment Standards Act (ESA) to give Rutledge notice of the layoff or pay in lieu of notice because he was a "construction employee" — a defined term under ESA regulations. The Small Claims Court decided that the employment contract did not rebut the presumption of reasonable notice. It con - cluded that the employment contract was void because it purported to contract out of the obligation under the ESA to pay ben- efits during the statutory notice period, and it awarded Rutledge damages equivalent to 9.5 weeks' salary. Superior Court decision The Ontario Superior Court dismissed Ca- naan's appeal of the Small Claims Court's decision. It began its analysis with a review of the following applicable legal principles and statutory provisions: The common law principle of termina - tion of employment on reasonable notice is a presumption. The presumption is only rebuttable if an employment agreement clearly specifies another period of notice. The employment agreement is only en - forceable if it complies with the minimum employment standards in the ESA. If it does not, the presumption is not rebutted and the employee is entitled to reasonable notice of termination. Some types of employees are not protect - ed by the ESA, including "any prescribed individuals." (s. 3(5), ESA) However, if an employee has two or more roles within their employment, and only one is not protected by the ESA, the em - ployee will continue to be protected with respect to that other role. (s. 3(6), ESA) Section 2(1)9 of Regulation 288/01 un- der the ESA states that construction em- ployees "are prescribed for the purposes of s. 55 of the Act as employees who are not entitled to notice of termination or termi- nation pay under Part XV of the Act." The court emphasized that, since Rutledge was a construction employee throughout his employment, notice of ter- mination and termination pay did not ap- ply to him, but they were the only employ- ment standards that didn't. "The regulation does not flatly disentitle Rutledge to the protection of the entire ESA as is the case for some of the other occupa- tions listed in s. 3(5) of the ESA. Rutledge continues to be afforded the protection of all other employment standards set out in the ESA, unless otherwise specifically ex- cluded by other legislation," said the court. "Accordingly, if any wording of an employ- ment contract purports to deny Rutledge those other employment standards, then those provisions are unenforceable." The court concluded that Rutledge's em- ployment contract contained the following two errors that rendered the termination provision unenforceable: An employee cannot contract out of a protected employment standard under the ESA even if it does not yet apply to them. It is enough if the provision in the con - tract would potentially violate the ESA at any date after hiring. If Rutledge's posi- tion changed to something other than a construction employee, his employment contract would deny him his right to benefits during his notice period, a right protected by the ESA. Although the em - ployment contract stated that Rutledge was employed as an apprentice in the con- struction industry, "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." Construction employees are entitled to the employment standards guaranteed upon their severance (ss. 63-66, ESA). "If CASE IN POINT: EMPLOYMENT CONTRACTS In its recent decision of Rutledge v. Canaan Construction Inc., the Ontario Superior Court of Justice, rather surprisingly, held that a termination provision in an employment contract that has even a remote possibility of violating the province's Employment Standards Act, 2000 in the future is unenforceable. Employment lawyers Rhonda Levy and George Vassos go through the court's reasoning and what it means for employers drawing up employment contracts. BACKGROUND BY RHONDA LEVY AND GEORGE VASSOS Termination provisions that could hypothetically violate ESA due to a job change that removes legal exemption from notice or termination pay are unenforceable: Ontario court An employee cannot contract out of a protected employment standard under the ESA even if it does not yet apply to them.

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