Ontario Court of Appeal Reinforces Waksdale and Alludes to a new Standard for Employment Contracts in Ontario

The recent Court of Appeal decision in Dufault v The Corporation of the Township of Ignace 2024 ONCA 915 (“Dufault”) follows a series of rulings that affirm the unenforceability of employment contracts where a termination provision is found to be non-compliant with the Employment Standards Act, 2020 (“ESA”).

Ms. Dufault was employed as a Youth Engagement Coordinator pursuant to a two-year fixed-term employment agreement. Prior to the expiry of her term, the Township terminated Ms. Dufault’s employment on a without cause basis. Ms. Dufault argued, among other issues, that the “for cause” termination provision was invalid in accordance with the principles set out in Waksdale v. Swegon North America Inc., 2020 ONCA 391 (“Waksdale”), and further that the “without cause” termination provision similarly violated the ESA and must therefore be unenforceable.

The Ontario Superior Court agreed, and among other findings made, determined that the language allowing the Township to terminate Ms. Dufault’s employment “at its sole discretion…at any time” violated the job protections outlined in the ESA, particularly regarding an employee’s statutory leave of absence or retaliation for attempting to exercise a right under the ESA.

On appeal, the Township argued that both the “for cause” and “without cause” provisions were compliant with the ESA. Alternatively, the Township submitted that if the “for cause” provision was contrary to the ESA, it ought to be severed and the “without cause” provision preserved, providing the Court of Appeal an opportunity to revisit its decision in Waksdale.

The Court of Appeal agreed with the lower court’s ruling that the “for cause” provision allowing the termination without notice contravened the ESA. Specifically, the Court took issue with the inclusion of “failure to perform services” in the definition of “cause” and the inclusive language used, determining that it set a threshold for “cause” that did not align with the “wilful misconduct” standard outlined in the ESA. Keeping with the Waksdale decision, the Court found that the “for cause” termination provision rendered all termination provisions in the agreement unenforceable.

The Court expressly declined to revisit the lower court’s finding on the “sole discretion…at any time” language in the employment agreement. As such, employment agreements that permit employers to terminate “in their sole discretion…at any time” are likely unenforceable because of the lower court ruling.

The Township has filed an application for leave to appeal to the Supreme Court of Canada. A similar leave application from British Columbia has also been filed. If either or both are granted, the Supreme Court could offer much-needed clarity on the interpretation of employment contracts across Canada.

In the meantime, employment contracts in Ontario must be drafted in compliance with the principles in both Waksdale and now Dufault. It is prudent for employers to review their existing employment agreements to ensure they reflect ongoing developments in the law.