Is the Termination Clause Now Dead?

The termination clause in the recent decision in Dufault was found to be unenforceable for several reasons. These included one particular issue due to the wording of the contract which allowed the employer the right to terminate by these words: ¹

The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows…

These, or similar words, have appeared in countless employment contracts over the years.

The plaintiff argued that these words put the termination clause offside, as the clause allowed the “sole discretion” to terminate “at any time”. It was submitted that this vocabulary would violate the protections given by the ESA to the employee on certain specific occasions where termination is verboten:

The plaintiff contends that Article 4.02 misstates the ESA when it purports to have “sole discretion” to terminate the plaintiff’s employment “at any time,” when the ESA prohibits the employer from doing so in certain circumstances.

On this issue court concluded that the words allowing the plaintiff to terminate in its “sole discretion” and “at any time” would violate the protections given by statute to persons returning from a statutory leave or from terminating as a reprisal:

  Thirdly, the plaintiff submits that Article 4.02 misstates the ESA when it gives the employer “sole discretion” to terminate the employee’s employment at any time. I agree with this submission. The Act prohibits the employer from terminating an employee on the conclusion of an employee’s leave (s. 53) or in reprisal for attempting to exercise a right under the Act (s. 74). Thus, the right of the employer to dismiss is not absolute.

Should this statement be the law, how possibly might an employer craft an agreement which allows it to terminate by a pre-determined valid termination clause? Recent case law has determined that a saving clause cannot protect an agreement which is offside the statute. Must the agreement then specifically reference every similar statutory protection of the same genre and proceed to exempt such protections from the termination  clause. ² This would be hard to imagine. What if the clause misses one such protected right?

A prior decision of the same court considered these same substantive words in 2020. ³ The agreement allowed the employer to terminate "without cause for any reason". The words “sole discretion” were missing, which is unlikely to be distinctive. The plaintiff made the same submission that these words ran afoul of the protections afforded by statute, citing 47 illustrations of such rights as set out in the Employment Standards Act, the Occupational Health & Safety Act and the Human Rights Code. ⁴ The submission failed. The agreement was found to be enforceable due to the saving clause, a result which, parenthetically, is directly in conflict with the Court of Appeal on the same issue. ⁵

The employer surely must be allowed the right to terminate in good faith, and provide agreed compensation. The decision in Dufault is unlikely to be appealed, given that the finding was made that the contract was unenforceable for other reasons, one of which is unassailable.

The end result is a decision which will place virtually every employment contract with a termination clause offside. This makes no sense.