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An Employee’s Sophistication Does Not Fix an Unenforceable Termination Clause – Court of Appeal Reaffirms Seminal Waksdale Decision – June 20, 2022

June 20, 2022
by Israel Foulon LLP


On June 8, 2022, the Ontario Court of Appeal issued its reasons in Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451 (“Rahman”). In these reasons, the Court of Appeal allowed the plaintiff employee’s appeal against the employer’s successful summary judgement motion at a lower level of court (Rahman, 2021 ONSC 5961).

At the summary judgement motion in Rahman, the Superior Court of Justice had found that the relevant termination clause was enforceable largely because of the plaintiff employee’s sophistication and the fact that she had successfully negotiated for termination entitlements that superseded the minimums provided by the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”). The Court of Appeal overturned the Superior Court of Justice’s finding and clarified that the analysis of whether a termination clause is enforceable at law does not involve any consideration for the relative sophistication of the employee. Rahman now stands for the proposition that an employee’s sophistication, access to independent legal advice and ability to negotiate contractual terms in the process of finalizing an employment agreement will not render an otherwise unenforceable termination clause enforceable.

The appellate level reasons in Rahman affirmed that the decision of Waksdale v Swegon North America Inc., 2020 ONCA 391 (“Waksdale”) remains the prevailing law in Ontario on termination clauses that are unenforceable due to “for cause” language that breaches the ESA. We previously summarized Waksdale in our June 24, 2020 E-Bulletin, and our February 8, 2021 E-Bulletin further confirmed the decision’s binding authority in Ontario when the Supreme Court of Canada denied leave to appeal in Waksdale.  

Rahman: Facts and Summary Judgement Motion

The plaintiff, Farah Rahman (“Rahman”), was employed by Cannon Design Architecture Inc. (“CDAI”) in the role(s) of Senior Architect Principal and Office Practice Leader. Prior to her hire, Rahman and CDAI had negotiated the terms of her employment, where Rahman was represented by counsel. Rahman’s employment commenced on February 16, 2016 pursuant to a written employment agreement. After a tenure of four (4) years, Rahman’s employment was terminated, and she was provided with four (4) weeks of pay in lieu of notice, which accorded with her contractual and statutory entitlements.

The termination of Rahman’s employment was governed by two separate “just cause” provisions from her Offer Letter and her Officer Agreement that conflicted. The Offer Letter provided that its provisions prevailed in the event of such a conflict. The Offer Letter’s “just cause” language (the “Clause”) stated:

CannonDesign maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal.

Rahman commenced a claim alleging wrongful dismissal and brought a summary judgement motion, asking the Superior Court of Justice to determine whether the termination language was enforceable.

Rahman had relied on Waksdale in her summary judgement motion, alleging that the “just cause” language was unenforceable as it allowed CDAI to terminate her without any entitlements being due to her in circumstances that did not rise to the ESA’s prescribed threshold of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” The case of Waksdale had established that termination clauses relying on any “just cause” standard lower than the prescribed ESA threshold would be found unenforceable for their attempts to evade the minimum standards of the ESA.

However, the motion judge of the Superior Court of Justice found differently and upheld the Clause. The motion judge declined to apply Waksdale on the bases that Rahman had obtained competent legal advice before signing the employment agreement, that she had secured an improved Clause for herself through negotiations that provided a termination entitlement in excess of the ESA minimums, that she had not taken issue with the “just cause” language, that Rahman was “a woman of experience and sophistication” and that the language and terms of the agreement represented the mutual intentions of the parties.

The motion judge found that the Clause, when “properly and fairly constructed within its true context,” did not violate the ESA. The motion judge dismissed Rahman’s claim for wrongful dismissal, which dismissal Rahman appealed.

Rahman at the Court of Appeal: The Employee’s Sophistication Does Not Save the Clause

The Court of Appeal granted Rahman’s appeal; it affirmed Waksdale, found the Clause void, and remitted the matter back to the Superior Court for a determination of the remaining issues, including the quantification of damages for the employer’s failure to provide reasonable notice of termination to Rahman.

The Court of Appeal declared that the motion judge had erred in law when he allowed considerations regarding Rahman’s sophistication and access to independent legal advice, along with the parties’ subjective intention, to override the plain language of the Clause. The Court of Appeal reaffirmed its own precedents, one of which had established that allowing subjective considerations to supersede the plain wording of termination clauses is an extricable error of law reviewable on the standard of correctness (i.e. the standard of whether or not the decision is correct). The Court of Appeal also reaffirmed that an employer’s actual compliance with its ESA obligations on termination does not save the illegality of a termination provision that presents with language that plainly contravenes the ESA.

The Court of Appeal then clarified that the threshold required by the ESA to disentitle an employee from any termination entitlements requires evidence that the employee was “being bad on purpose.” The plain wording of the Clause in Rahman clearly disentitled Rahman from any termination entitlements for conduct that did not reach the ESA’s threshold.

As a result, and relying on Waksdale and its numerous subsequent applications, the Court of Appeal found the Clause void and unenforceable in limiting Rahman’s termination entitlements to her ESA minimum entitlements. At the time of writing, the employer in Rahman has not indicated an intention to appeal the Court of Appeal’s decision to the Supreme Court of Canada.

Take Away for Employers

The Court of Appeal’s decision and reasons in Rahman have resolved the confusion injected into this area of the law by the motion judge’s initial decision. In the overall result, employers must be aware that the presumed or evident sophistication of any employee, as well as their access to and reliance on independent legal advice, are not factors that any Ontario court may consider in its assessment of whether a termination clause is unenforceable.

Prior to the Court of Appeal’s decision in Rahman, the motion judge’s reasons in Rahman had already been disregarded by a separate Superior Court judge in similar wrongful dismissal cases involving unenforceable termination clauses. In both Campbell-Givons v. Humber River Hospital, 2021 ONSC 6317 (“Campbell-Givons”), and Livshin v. The Clinic Network Canada Inc., 2021 ONSC 6796, Justice Black of the Superior Court of Justice had declined to consider the sophistication of the plaintiff employee in assessing the legality of the termination clauses in question. In Campbell-Givons in particular, Justice Black affirmed that an unenforceable termination clause cannot be rewritten by the court to achieve compliance with the ESA, and that such an unenforceable clause could not be enforceable for some employees and unenforceable for others (dependent on the level of sophistication of the particular employee at issue). The Court of Appeal’s decision in Rahman implicitly accords with these principles despite no explicit reference to these cases.

No matter the sophistication of any employee, only an enforceable termination clause may effectively restrict the employee’s termination entitlements. This is why employers must ensure that termination clauses in employment agreements are enforceable pursuant to the most current jurisprudence. This may require employers to proactively review existing and operative contracts and to potentially offer fresh contracts with enforceable termination clauses to existing employees, with fresh consideration offered to the employee in exchange for the employee’s acceptance of the newly updated contract.

We strongly recommend that you contact a member of our team to draft your employment agreements, to review any existing contracts or to discuss how new contracts can be entered into with existing employees in a legal and enforceable manner.

Legal Disclaimer

This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation. Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.