August 30, 2022
by Israel Foulon Wong LLP

Summary

The Superior Court of Justice of Ontario recently issued its reasons in Henderson v. Slavkin et al., 2022 ONSC 2964 (“Henderson”), which was a proceeding decided by way of a summary trial. In its reasons, the Court reaffirmed the line of analysis flowing from Waksdale v Swegon North America Inc., 2020 ONCA 391 (“Waksdale”, as previously discussed in our June 24, 2020 E-Bulletin, and our February 8, 2021 E-Bulletin), just as the Court had previously done.

In Henderson, similar to what the Court did in Gracias v. Dr. David Walt Dentistry, 2022 ONSC 2967 (“Gracias”, as previously discussed in our June 24, 2022 E-Bulletin), Waksdale was applied to connect language relating to termination – which was neither included in nor referred to in the termination clause itself, to find the termination clause was unenforceable. As a result, moving forward, employers must be cautious of the Court’s ability to connect any termination language from any clause in an employment contract to the governing termination clause in analyzing the enforceability of the language as a whole.  In short, termination language found anywhere in an employment agreement may be used to invalidate what would otherwise be an enforceable termination clause.

The Facts and Issues

Rose Henderson (“Henderson”) was a receptionist at an oral dental surgery office for thirty (30) years, prior to her termination without cause. Henderson had an unblemished record and received a positive letter of reference at the time of her termination. Henderson had been presented with an employment contract in 2015 (the “2015 Contract”) and an explanatory letter. There had not been any prior written contracts that governed Henderson’s employment. Henderson accepted the 2015 Contract and continued to work until the termination of her employment in 2020.

Key to this proceeding were the following facts:

The 2015 Contract contained three clauses that were challenged by Henderson as illegal in her claim for wrongful dismissal:

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. 

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:

(a)  Private or financial interest in an organization with which does business [sic] or which competes with our business interests;

(b)  A private or financial interest, direct or indirect, in any concern or activity of ours of which you are aware or ought reasonably to be aware;

(c)  Financial interests include the financial interest of your parent, spouse, partner, child or relative, a private corporation of which the [sic] you are a shareholder, director or senior officer, and a partner or other employer;

(d)  Engage in unacceptable conduct, including but not limited to soliciting patients for dental work, which could jeopardize the patient’s relationship with us.

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.

19.  Confidential Information.  You recognize that in the performance of your duties, you will acquire detailed and confidential knowledge of your business, patient information, and other confidential information, documents, and records.  You agree that you will not in any way use, disclose, copy, or reproduce, remove or make accessible to an person or other third party, either during your employment or any other time thereafter, any confidential information relating to our business, including office forms, instruction sheets, standard form letters to patients or other documents drafted and utilized in the Employer’s practice except as required by law or as required in the performance of your job duties.

For clarity, confidential information includes, without limitation, all information (in written, oral, tape, cd rom, diskette, and USB keys or any electronic form) which relates to the business, affairs, properties, assets, financial condition and plans, concerning or relating to the Employer, our dental practice or patients and specifically includes all records, patient files, patient lists, patient names, patient addresses, patient telephone numbers, email addresses, invoices and/or statements, daily appointment sheets, radiographs, marketing information and strategies, advertising information and strategies, and financial information.

In the event that you breach this clause while employed by the Employer, your employment will be terminated without notice or compensation in lieu thereof, for cause.

This provision shall survive the termination of this Agreement. [emphases added]

The Court’s Decision(s)

For Cause Language in Confidentiality and Conflict of Interest Clauses Invalidates Termination Clause, 18 Months Notice Awarded

The Court addressed each of the impugned clauses from the 2015 Contract in turn.

The Court found clause 13 (the termination clause) to be enforceable—it did not find any ambiguity or inconsistency in the language which would breach the ESA to render the termination clause void.

The Court found clause 18 to be unenforceable—it agreed with Henderson that the prescribed types of conflict of interest were overly broad and/or ambiguous, such that the employee would not be able to know at the time of entering the contract what conduct would actually justify termination without notice or pay under clause 18. Clause 18 was therefore invalidated by the Court.

The Court found clause 19 to be unenforceable—the Court conceived of the possibility that confidential information could be disclosed inadvertently by an employee, or that such disclosure could be trivial. The language of clause 19, which equivocated disclosure of confidential information with wilful misconduct that is not trivial, was simply not clear enough to allow employees to appreciate in what circumstances the disclosure of confidential information could result in immediate termination without notice or pay in lieu thereof. Clause 19 was therefore also invalidated by the Court.

Key to the Court’s analysis was that even employees terminated for cause are entitled to their minimum statutory entitlements under the ESA unless the employer can establish that the employee is guilty of wilful misconduct or wilful neglect of duty that is not trivial and that has not been condoned by the employer.  Both clause 18 and clause 19 contemplated conduct that might not have met the ESA’s wilful misconduct standard, and therefore the clause that allowed the employer to terminate without compensation for such conduct was illegal and void.  The Court ultimately found that the invalid clauses 18 and 19 breached the ESA such that they invalidated the entire employment contract, leaving no term that could restrict Henderson’s termination entitlements. As the parties had agreed on the notice period of 18 months, the Court awarded same.

CERB is Not Deductible From Wrongful Dismissal Damages

Henderson is also important for its analysis of the issue of whether Canada Emergency Response Benefit (“CERB”) is deductible from an award of wrongful dismissal damages. The various provinces have taken differing approaches to this issue, and Henderson is one of the first decisions that collected the different approaches across Canada and attempted a fulsome analysis on whether and why CERB should be deductible from any award of wrongful dismissal damages. The bulk of Ontario cases have found CERB not to be deductible from wrongful dismissal damages, whereas cases from British Columbia and the Atlantic provinces of New Brunswick and Nova Scotia had found CERB to be properly deductible.

The question of CERB’s deductibility invokes the concept of a collateral benefit or “compensating advantage.” The Court applied a previous decision from the Supreme Court of Canada, IBM Canada Limited v. Waterman, 2013 SCC 70 (“IBM”) that provided a framework for identifying compensating advantages and how to assess their deductibility. Per IBM, a compensating advantage is a gain that flows to the individual, which is caused by another party’s conduct or omission or intended to indemnify for the type of loss caused by the other party’s conduct or omission. The IBM analysis found that most compensating advantages would be deductible from damages awards, but it also identified principles on which compensating advantages would be found not to be deductible.

The Court decided the question of CERB’s deductibility in Henderson based on key facts. In particular, it found that CERB was meant as a benefit for workers whose work had ceased due to COVID-19 reasons, whereas Henderson’s notice of termination long predated the pandemic and was for reasons entirely unrelated to COVID-19. Therefore, as it would be likely that Henderson would need to repay her CERB amounts in the future due to her initial ineligibility to access them, CERB was not an advantage that had flowed to Henderson. The Court went further to say that CERB is a benefit intended for wage loss related to COVID-19 and not as a benefit for wage loss arising from an employer’s breach of an employment contract.  

The Court also found that Henderson’s receipt of CERB was not causally connected to the termination of her employment. Though her employment was terminated prior to the COVID-19 pandemic such that she was unemployed during the period she received CERB, it was not clear that Henderson would not have received CERB “but for” being wrongfully dismissed. The link between the termination of her employment by the defendants and Henderson’s receipt of CERB was simply not a strong enough causal connection.

The Court concluded that CERB was not a collateral benefit/compensating advantage, therefore, it would not be deductible from Henderson’s damages. 

In the result, Henderson received 18 months of notice with no deductions for CERB.

Take Away for Employers

Henderson affirms Waksdale just like Gracias did: it continues to be the prevailing law that offending contractual language authorizing termination without notice found anywhere in an employment contract may be applied to invalidate the termination clause for illegality.

However, Henderson (and Gracias) present a further development in the Waksdale line of analysis: whereas Waksdale involved illegal termination language directly within the “for cause”/”with cause” segments of the relevant employment contracts, in Henderson, the entirety of the termination clause was individually found enforceable and yet was nevertheless voided by subsequent references to termination without notice elsewhere in the contract.

Put simply, Henderson shows us that every instance of any contractual language that mentions termination without notice or pay in lieu thereof anywhere in the contract can form a basis to invalidate otherwise enforceable termination clauses. This same analysis may also apply to documents incorporated into employment agreements by reference, including but not limited to employee handbooks and policy manuals.

We strongly recommend you contact a member of our team in order to review your key employment document templates in light of this significant development in order to ensure compliance and minimize employer liability.  On the separate issue of the deductibility of CERB from wrongful dismissal damages, it remains to be seen whether and how far other Courts and decisions will adopt the analysis in Henderson. This is because the Court’s analysis in this case is highly specific to the facts relating to Henderson’s litigation; it is unclear at this time whether future decisions will adopt or vary the analysis presented by the Court regarding the nature of the CERB benefit itself.