Employers must exercise caution when drafting the terms of employment contracts. An improperly
drafted provision in an employment contract can have unintended consequences, even if those
provisions seem valid at the time the contract is executed. Contract provisions, at minimum, must fall
within the minimum standards set out in provincial legislation, both in the present and as the contract
endures into the future.
The Ontario Employment Standards Act (ESA) provides the minimum standards for most employees in
Ontario. The Act establishes rights and responsibilities for employees and employers, including the
minimum standards surrounding reasonable notice or payments in lieu of notice. These requirements
change according to the service time accrued by a particular employee. For example, the ESA does not
require notice for employees of three months or less. Employees of more than three months and less
one year are entitled to one week, and employees of over three years are entitled to three weeks.
The Ontario Court of Appeal decision in Covenoho v. Pendylum Ltd., marks a significant development in
how a termination clause that fails to address the future implications of its language can become a much
greater problem for employers. In Covenoho, a termination clause in a one-year fixed-term employment
contract was found to be of no force and effect because it failed to account for the reasonable notice
standards in the ESA for employees beyond three years of service.
The employment agreement included the following termination clause:
2.1 The term of this Agreement will commence on the date of this Agreement and will continue in full force and effect unless the Agreement is terminated as follows:
(a) immediately by PENDYLUM providing written notice to you if you violate or fail to honor any of
these provisions of this Agreement or fail to perform your duties as set out in Appendix A in a
satisfactory manner as determined by PENDYLUM (known as Cause); or if the PENDYLUM Client to
which you have been contracted terminate[s] its contract with PENDYLUM for your services; OR
(b) by either party providing written notice of at least two (2) weeks to the other.
Although the employee was terminated within ESA standards, just before reaching three months of
service without notice or payment in lieu of notice, the Court determined the termination clause to be
of no force and effect because the contract would violate the ESA after the three-year mark for failing to
provide reasonable notice. The Court relied on Howard v. Benson Group Inc., where the Court stated “In
the absence of an enforceable contractual provision stipulating a fixed term of notice, or any other
provision to the contrary, a fixed-term employment contract obligates an employer to pay an employee
to the end of the term and that obligation will not be subject to mitigation”.
The employee was awarded full payment of the remaining 40-weeks of the fixed-term employment
contract in the amount $56,000. All employers should take note: failure to address employment
standards for the duration of an employment contract can be a costly mistake.
If you are facing injustice in the workplace, our employment lawyers Toronto are ready to step in as your fiercest advocate, enforce those protections and hold employers to their responsibilities.