Another Reason to Periodically Review Your Employment Contract

by | Sep 20, 2022 | For Employers

After the Court of Appeal’s 2020 decision in Waksdale v. Swegon North America Inc. many employers revised the termination clause in their standard employment contract because its existing termination clause was no longer enforceable.

Now along comes another Ontario court case that renders an otherwise enforceable termination clause unenforceable because there was a specific penalty clause in the contract.

A specific penalty clause generally states that an employee agrees they can be terminated with cause without any notice (or pay in lieu of notice) if they engage in specific misconduct. In this case, an employee signed an employment contract which included the following termination clause:

13. Your employment may be terminated without cause for any reason upon the provision of notice equal to the minimum notice or pay in lieu of notice and any other benefits required to be paid under the terms of the Employment Standards Act, if any. By signing below, you agree that upon receipt of your entitlement under the Employment Standards Act, no further amount shall be due and payable to you, whether under the Employment Standards Act, any other statute or common law.

This clause was found to be enforceable. So far so good.

The contract also contained the following specific penalty clause:

18. Conflict of Interest. You agree that you will ensure that your direct or indirect personal interests do not, whether potentially or actually, conflict with the Employer’s interests. You further covenant and agree to promptly report any potential or actual conflicts of interest to the employer. A conflict of interest includes, but is not expressly limited to the following: [four scenarios listed] A failure to comply with this clause above constitutes both a breach of this agreement and cause for termination without notice or compensation in lieu of notice. The judge concluded this specific penalty clause violated the Employment Standards Act and therefore refused to enforce the otherwise enforceable termination clause.

It did not matter that the employer had not claimed the employee had breached the Conflict of Interest clause, or that the employer had terminated the employee without cause. The employer simply wanted to enforce the without cause clause of the employee’s contract.

Lesson to be Learned

If you have a specific penalty clause in your standard employment contract then you should have an employment lawyer review the clause and advise whether the clause needs be to rewritten or removed from the contract

For the past 30 years, Doug MacLeod has been advising and representing employers in all aspects of the employment relationship. If you have any questions, you can contact him at 416 417-9894 or at doug@macleodlawfirm.ca

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

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