'There were flagrant breaches of the minimum statutory employment standards,' says lawyer, providing insights for HR
An employer must pay a worker who was fired after 4.5 months of service two months’ pay plus $10,000 in punitive damages for unenforceable termination provisions and “a marked departure from ordinary standards of decent behaviour” after dismissing the worker, an Ontario court has ruled.
“There have been a lot of changes [in the law] over the last few years with respect to termination clause enforceability and there were some pretty major changes in Spring 2020,” says Aleksandra Pressey, a lawyer and workplace investigator at Williams HR Law in the Greater Toronto Area.
“It's possible that, given the written offer of employment was provided to the worker on June 4, 2020, the employer may not have been aware of some of those developments - but it’s a good reminder to have employment agreements updated on a regular basis.”
Gibson Building Supplies is a company that provides roofing and exterior building supplies based in Aurora, Ont.
In early June 2020, Gibson made a written offer of employment to the then-52-year-old worker that included an employment agreement. The worker accepted the offer and began working for Gibson on June 15 as an executive assistant.
The employment agreement provided for a 90-day probation period and a bonus provision that allowed the company to pay her bonuses at its sole discretion. It stated that “no bonus will be payable once you cease active employment with the organization” and bonuses would not be considered in the calculation of statutory termination pay.
Termination provisions
The employment agreement also had a termination section that permitted Gibson to terminate the worker’s employment “at any time and in our sole discretion” with written notice or pay in lieu of notice of two weeks plus statutory severance and notice requirements. The agreement stated that pay in lieu of notice would be “only your base salary and employment-related health and dental benefits for the applicable period.” In addition, it stipulated that the worker agreed to execute a full and final release “in exchange for the notice and/or pay set out herein.”
The agreement also allowed Gibson to terminate the worker’s employment for just cause “at any time without notice, pay in lieu of notice, severance pay, or other liability, other than any… required pursuant to the applicable employment standards legislation.” It listed several examples of just cause, indicating that it wasn’t limited to that list.
The worker’s job involved travelling to Gibson’s various locations and the company authorized her to take the 407 express toll route to save time, for which she would be reimbursed.
In early October, Gibson set the worker’s bonus plan so she would receive one per cent of her salary for completing each of five different objectives. She completed two of the objectives within the month.
Employment terminated
However, on Oct. 29, Gibson terminated the worker’s employment. The termination letter stated that, in accordance with the without-cause termination provision, Gibson would provide her with two weeks’ pay plus applicable statutory severance and notice requirements. Based on her service, this would total three weeks’ pay. The company also provided a one-per-cent bonus and vacation pay, while her health and dental benefits would continue until Nov. 20. The letter concluded by saying “all amounts will be paid within 10 business days upon receipt of a signed ‘full and final release.’”
The worker declined to sign the release and Gibson paid only her wages up to her termination date. The worker also told Gibson that she had incurred 407 toll expenses for which she still needed to be reimbursed.
The worker sued for wrongful dismissal, alleging that the termination provisions were unenforceable as they breached the Ontario Employment Standards Act, 2000 (ESA). She claimed damages for five months’ pay in lieu of notice ($25,000), unpaid wages and vacation pay ($1,500), reimbursement of business expenses ($46.93), and aggravated or punitive damages for mental distress ($25,000). She added that Gibson issued her record of employment (ROE) one month after her termination, which hindered her ability to get employment insurance benefits.
The worker applied for more than 245 jobs with a number of interviews, which she tracked in a journal. However, she didn’t find a job until June 2021, after a pandemic-related stay-at-home order was lifted by the provincial government.
The court noted that a termination clause can only rebut common law reasonable notice if it has clear language about the employee’s entitlement and doesn’t violate the ESA at the time the agreement is executed. Where anything is vague, the clause should be interpreted in favour of the employee, said the court, adding that a termination clause must be read as a whole.
Violation of employment standards
The court found that the without-cause termination provision stipulated that the worker would only receive her base salary along with health and dental benefits for the notice period. However, the ESA’s definition of wages included all employee benefits without reduction or alteration. The provision also required the worker to execute a full and final release to get her statutory entitlements, which also violated the ESA and made the without-cause termination provision unenforceable, said the court.
“In certain circumstances, a termination clause may require an employee to execute a release in exchange for anything over and above statutory entitlements, but that's not what happened here,” says Pressey. “Essentially, they required her to sign a release to get anything, even the things that she was automatically entitled to, which is a significant problem because you can't contract out of the ESA minimums.”
The court also found that the with-cause termination provision violated the ESA, as several of the examples of just cause that warranted termination without any pay or notice – such as unacceptable performance standards, lateness, and off-duty conduct that prejudices the company’s reputation – could fall short of the statutory standard of deliberate conduct.
“There were many instances [listed] that wouldn't qualify as wilful misconduct or neglect of duty that reaches that level, which is higher than just cause,” says Pressey. “The employee must be doing something deliberately that they know is wrong [to forego ESA entitlements].”
“At the beginning of the employment relationship, the employee has to have a very clear idea of what could happen in any set of circumstances, which is why [the court] also considered the termination with cause provision, even though her employment was terminated without cause,” adds Pressey.
Saving provision in termination agreement
The court noted that the termination section in the agreement included a “saving provision” stating that it “includes any entitlements pursuant to the act” but this couldn’t reconcile the provisions that “were not drafted with strict compliance with the ESA as their main objective.”
“The court makes a fair point that, if courts were just to take an unenforceable termination clause and the only penalty was to say, ‘Okay, allow the saving provision to take effect and you have to give the person their minimum entitlements’ - there wouldn't really be much incentive for organizations to draft them correctly in the first place,” says Pressey.
Given that the termination provisions weren’t enforceable, the court determined that the worker was entitled to two months’ notice.
As for the worker’s bonus entitlement, the court noted that a requirement to be actively employed wasn’t enough to deny a bonus. The notice period should be considered active employment, said the court, adding that the evidence was that the worker had completed two of the tasks earning a one-per-cent bonus for each.
As for mitigation, the worker’s job-search journal showed that she was active in looking for employment and Gibson provided no proof that she failed to do anything that would have secured comparable employment, said the court.
Punitive damages for mental distress
The court declined to award aggravated damages for mental distress as there was no evidence that the worker suffered mental distress beyond what was normal in being fired. However, it was a different story for punitive damages, as the court found that Gibson’s conduct in repeatedly failing to comply with the ESA was “a marked departure from ordinary standards of decent behaviour.”
Termination of employment is usually distressing for employees, but the normal hurt feelings and distress that result from a dismissal aren't compensable - it's a longstanding principle from the Supreme Court of Canada, says Pressey.
“For aggravated and moral damages to be at play, there needs to be something that wouldn't be ordinarily under contemplation when it comes to mental distress or psychological damage,” she says. “But the court found that the employer’s conduct was a marked departure from standards of decent, reasonable behavior when terminating someone’s employment - there were flagrant breaches of the minimum statutory employment standards, they didn't issue her ROE until much past the deadline, and they didn't reimburse her for her expenses.”
Gibson was ordered to pay the worker two months’ salary and benefits, a two-per-cent bonus, unpaid vacation pay, reimbursement of the 407 toll expenses, and $10,000 in punitive damages. The total damage award was $19,923.85.
