Court upholds employer's decision in wrongful dismissal case: Termination clause was enforceable

The Ontario Superior Court has dismissed a wrongful dismissal action brought against Cannon Design Architecture by a former employee, Farah Rahman because she had the benefit of a lawyer to negotiate her employment contract.

In Rahman v. Cannon Design Architecture Inc., Cannon Design Architecture employed Rahman in February 2016. She agreed to yearly pay of $185,000 plus benefits and bonus. However, her contract contained a “just cause” provision whereby Rahman would receive no compensation if she were fired for “cause” even if it did not rise to the level of wilful misconduct.

Cannon Design Architecture dismissed Rahman in April 2020.

She filed a wrongful dismissal suit, saying the termination provisions of her written employment agreement are void because they violate the minimum standards of the Employment Standards Act.

The plaintiff, citing Waksdale v. Swegon North America Inc. argued that the language governing termination of employment for cause in her offer letter violated the ESA because it created confusion by permitting termination without notice in situations not authorized by the ESA.

“The alleged violations of the ESA arise from a just cause termination provision that allegedly permits termination without notice in the circumstances beyond those permitted by the ESA; the notice provisions purport to pay base salary only during the notice period; lack of severance pay in the Officer's Agreement; insufficient notice provisions in future; and stripping of bonus entitlement even if fully earned,” wrote the court.

The Ontario Court of Appeal decision on Waksdale v. Swegon North America Inc held that if any part of a termination provision in an employment contract breached the ESA, the entire provision was unenforceable, and the employee would be entitled to full wrongful dismissal damages.

“Waksdale swung the pendulum in favour of employees and employers had to scramble to update employment agreements to ensure they're enforceable,” says employment lawyer at Rudner Law, Nadia Zaman.

In the summary judgement decision, Justice Sean Dunphy said the termination provisions of the employment agreement were valid and had no ambiguity. Justice Dunphy dismissed the action.

He declared that the termination without cause provision was enforceable because Rahman was “sophisticated” and “experienced,” earned a significant salary in a senior position and had the benefit of a lawyer to negotiate her contract.

“Ms. Rahman sought and received legal advice about her rights at common law and under the ESA in relation to the possible future termination of her employment.”

He said that within a week of receiving the employment contract, Rahman's lawyer raised “particular” concerns regarding the termination language of the employment contract in a letter he sent to Cannon Design. However, her lawyer raised no concerns regarding the “just cause” termination language.

“There can be no suggestion that Ms. Rahman was not adequately informed of both the nature of the statutory and common law rights that were the subject of the negotiations and the impact of the contract proposed by the employer on those rights.”

Zaman says a crucial element in Justice Dunphy's decision was that Rahman sought independent legal advice to consider the terms of her employment offer before signing the contract.

She says Justice Dunphy saw both parties as having equal bargaining power, whereas “in most situations, the courts will see an imbalance in the bargaining power with respect to the employment relationship.”

Rahman ought to have known the binding nature of the minimum standards in the ESA cannot be reduced or waived by contract and understood that the common law standards concerning termination of employment were potentially more generous than the ESA minimum standards and the termination benefits proposed in her offer letter, Dunphy found.

“There is no ambiguity at all on that account, particularly in the case of a plaintiff who had independent legal advice,” wrote Justice Dunphy.

Zaman says the decision can be persuasive for judges deciding cases with similar facts.

Although the decision is not binding to other Superior Court judges like the Waksdale decision, she says it will be interesting to see how it extends to not precisely similar cases.

“It's not entirely clear how it's going to be decided in those types of cases where the facts are not exactly similar, but they may have some resemblance.”

Employers will probably use the context of the employment contract issue to argue that the termination clause is enforceable even in cases where it might not be in their favour, she says. 

If the decision is appealed, she says it will be fascinating to see how the Court of Appeal decides the case, and it will be helpful to have a higher court ruling on the matter because the “employment bar does not need any more uncertainty, especially in light of the changes during the pandemic.”

Stephen Moreau, the lawyer for Rahman, declined to comment because the plaintiff is “considering an appeal.”