Ontario courts have been clear in recent years that a violation of the ESA, particularly in the termination paragraph, will make the termination term unenforceable. To be more precise, the termination clause has been held to be “illegal’. It is void, not voidable.

This has been the case where the agreement fails to allow for benefits to be continued for the ESA period, or fails to distinguish between the gradations of cause to avoid the ESA termination entitlements and common law, or even to account for the right of a leave period. Similarly, an agreement which fails to allow for the minimum notice or severance payments will cause the agreement to fail. This applies even to the potential of such an event.

What then might be the consequence of a situation in which the agreement allows for a generous severance sum, one which the employee seeks to enforce, where the termination clause runs afoul of the statute. For example, the contract mandates a lump sum payment of two years severance without mitigation, yet the same agreement fails to offer the distinctions of just cause, or omits the benefits continuation. Might the employer be allowed the defence of the “illegal” agreement, to deny the effectiveness of the severance obligation set out in the contract?

At first blush, it seems instinctively unfair to allow the employer the right to plead the contractual error to its advantage. However, as noted above, the agreement is not voidable at the employee’s election, it is illegal and unenforceable by its failure to comply with the statute.

The employee yet may have a remedy.

Rectification

This is an unusual remedy and is difficult to obtain. It may be sought where the mistake is mutual or one-sided.

In the case of a mutual mistake, the moving party must demonstrate (1) the written document does not represent the actual agreement that was reached between the parties and (2) this real common agreement continued up until the time when the written agreement was executed. ¹

It may offer a sympathetic approach, yet the submission that the final document did not set out the actual agreed terms may be a formidable burden.

The situation where the mistake is one sided is likely to be exceptional, but where these are the facts, the remedy is more likely. This would require evidence that the employer was well aware of the consequence of the offending clause or  “has good reason to know of it and to know what was intended”. ²

To succeed in this claim, the employee must show that the employer had such knowledge of the issue and failed to alert the employee and that the failure to do so would be inequitable by either benefiting the wrongdoer or prejudicing the victim.

The objective of the trial judge is to restore the parties to their true agreement, not to amend the terms due to an error in judgment. What is critical to the test is whether the wrongdoer has relied upon the error which may be seen as “fraud or the equivalent of fraud”. ³

The court may also consider whether the employee had been negligent in failing to insure the agreement was drafted in accordance with the statute. That being said, all cases in this context will be premised on such an error made by the innocent party. The question will be whether it would be unjust to deny the remedy and instead impose the responsibility upon the negligent plaintiff.

It may well be argued that the Bhasin duty of honest performance may be a factor in the court’s assessment of the competing equities in the case. Bhasin has been applied in cases interpreting the termination clause but this context is quite distant from those situations. ⁴ The Supreme Court in Matthews v Ocean Nutrition did note that one issue in assessing the viability of a restrictive clause in an employment contract was whether this term was "adequately brought to the employee's attention" but again this is a reach and then some to be applied to this context.

In a 2020 decision, the Supreme Court of Canada also applied the Bhasin principle to a maintenance contract which had stipulated a 10 day termination clause. ⁵ The trial judge had found that the contractor was actively deceived by the condominium corporation. It was found to be liable even though it had used the otherwise valid termination clause. The Ontario Court of Appeal had disagreed with the trial judge. The Supreme Court restored the trial decision:

I respectfully disagree with the Court of Appeal on whether the manner in which the termination clause was exercised ran afoul of the minimum standard of honesty. The duty to act honestly in the performance of the contract precludes active deception. Baycrest breached its duty by knowingly misleading Callow into believing the winter maintenance agreement would not be terminated. By exercising the termination clause dishonestly, it breached the duty of honesty on a matter directly linked to the performance of the contract, even if the 10-day notice period was satisfied and irrespective of their motive for termination. For the reasons that follow, I would allow the appeal and restore the judgment of the Ontario Superior Court of Justice.

Bhasin clearly does not directly apply, yet its underlying theme may be of some influence in establishing the principles of equitable interpretation in this context.

The same submission may be made on the basic principles of interpretation of employment agreements, which are to be read in a liberal and generous manner to the favour of the employee, given the inherent power imbalance and the objectives of fairness, as reviewed here.

Employment cases making this plea are rare and are not helpful to this particular question. An example of a fact situation in which rectification of an employment contract was allowed is a 2002 B.C. Supreme Court decision. ⁶

The court concluded that a fixed term employment agreement of 3 years was reached by exchanged correspondence of February 13, 1995, which was not replicated in the signed employment agreement which followed. The plaintiff had not read the final document. The court relied upon the above referenced passage from the Ontario Court of Appeal decision in Downtown King West and concluded that rectification was to be awarded as the final document did not represent the common intention of the parties. This result was of academic value only. The court dismissed the action as the plaintiff had not proven a damage claim.

In summary, the law on rectification may offer some solace, certainly where the mistake is one-sided. Where it is a mutual error, it may well be a tough road to hoe.