Contract Term Offside the ESA – Void or Voidable

In a prior post, I reviewed the issue of the employer’s reliance upon a term which was in violation of the ESA to support a submission that the termination clause, in the hypothetical, containing a generous severance allowance, was void and hence unenforceable.

Court of Appeal

There are two reported Court of Appeal cases which do touch on such an argument.

The most recent, Kopyl v. Losani Homes, involved an employment contract for a fixed period of 12 months. As the agreement was terminated prior to the expiry of the fixed term and as the relationship had exceeded three months, the contract then required ESA compliance with the minimum notice period requirement. Both parties agreed that this caused the agreement to be offside the ESA.

The employer then argued that as this was so, the contract contained, in substance, a “termination clause”, this being for the unexpired period of the agreement. The submission then followed that the “termination clause” was unenforceable and the claim should be based on a common law notice period.

The point significant to this discussion that it was the employer which asserted that the agreement was unenforceable, not the employee. There was no expressed public policy or other admonition for the making of this argument. The issue of void or voidable did not arise in the reasons. The submission failed for other reasons, as the court did not accept the residual period of the contract was a “termination clause”.

An earlier 2017 decision of the Court of Appeal also considered this argument, in Roberts v. Zoomermedia Limited. The contract in question was unusual. It allowed for a generous “termination” payment at the end of a fixed term period. The word is in parentheses as the entitlement to the payment did not require a termination in the normal sense of the word, but rather was due on the expiry of the fixed term.

The same agreement also set out the sum due in the event of a termination within the fixed term period. This clause was argued by the employer to be offside the ESA as the contract did not provide all the ESA entitlements due on termination. Hence, the second submission was that the termination clause should fail and the claim should be based on common law notice. It may be noted that the employee was initially well represented by legal counsel in the construction of the contract.

The Court of Appeal determined that there was no need to address this argument. It did, however, offer this obiter consideration of the argument advanced by the employer:

Whether s. 9.2 infringes the ESA is irrelevant to this action, and there is no need for this court to address that question. Effectively, the appellant argues that because it did not agree to provide the respondent with all of his statutory entitlements – entitlements that were conditional on an early termination, an event which never occurred – the respondent must therefore forfeit his contractual entitlements: contractual entitlements that are far greater than what either the ESA or the common law would have provided. This would be a perverse application of a statute that is intended to protect the interests of employees, and I would reject it.

In substance, the Court viewed the offending contract term as one rendering the agreement voidable and not void, based on a public policy perspective.

Machtinger

There is much to be said in favour of such a broad remedial reading of the principles espoused by the Supreme Court in Machtinger and the numerous appellate decisions following. In Machtinger itself, the Iacobucci J. offered a strong view to consider such public policy issues:

Section 10 of the Interpretation Act, R.S.O. 1980, c. 219, provides that every Act "shall be deemed to be remedial" and directs that every Act shall "receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act according to its true intent, meaning and spirit."  The objective of the Act is to protect the interests of employees by requiring employers to comply with certain minimum standards, including minimum periods of notice of termination.  To quote Conant Co. Ct. J. in Pickup, supra, at p. 274, "the general intention of this legislation [i.e. the Act] is the protection of employees, and to that end it institutes reasonable, fair and uniform minimum standards."  The harm which the Act seeks to remedy is that individual employees, and in particular non-unionized employees, are often in an unequal bargaining position in relation to their employers.  As stated by Swinton, supra, at p. 363:

. . .  the terms of the employment contract rarely result from an exercise of free bargaining power in the way that the paradigm commercial exchange between two traders does.  Individual employees on the whole lack both the bargaining power and the information necessary to achieve more favourable contract provisions than those offered by the employer, particularly with regard to tenure.

 

Accordingly, an interpretation of the Act which encourages employers to comply with the minimum requirements of the Act, and so extends its protections to as many employees as possible, is to be favoured over one that does not.  In this regard, the fact that many individual employees may be unaware of their statutory and common law rights in the employment context is of fundamental importance.  As B. Etherington suggests in "The Enforcement of Harsh Termination Provisions in Personal Employment Contracts: The Rebirth of Freedom of Contract in Ontario" (1990), 35 McGill L.J. 459, at p. 468, "the majority of unorganized employees would not even expect reasonable notice prior to dismissal and many would be surprised to learn they are not employed at the employer's discretion."

This being said, there is nothing said in this decision and the numerous decisions which have followed on the issue of voidable or void. In fact, all cases speak to the contract being void once it crosses the line of ESA compliance. In Machtinger, the Court stated:

What is at issue in this appeal is the effect, if any, to be given to a term of an employment contract which does not comply with the minimum notice requirements of the Act.  Is such a term capable of displacing the common law presumption of reasonable notice?  The effect of ss. 3 and 4 of the Act is to make any attempt to contract out of the minimum employment standards of the Act by providing for lesser benefits than those minimum employment standards, "null and void".  The two contracts at issue on this appeal do attempt to contract out of the minimum notice period set out in s. 40(1)(c) of the Act by specifying notice periods shorter than the statutory minimum.  Accordingly, the two contracts are not in compliance with the mandatory language of s. 3 of the Act, and those portions of the two contracts specifying the notice periods are "null and void".

It is certainly true that the issue of the employer’s right to plead such a violation was not before the Court and indeed has rarely been so. It would, however, not require supreme clairvoyance to predict the possibility of that event. No cases speak to the issue even on hypothetical terms, apart from the cited obiter above. All decided cases uniformly speak to the contract as being null and void.

Public Policy Constraints

The issue then becomes should the employer be prevented as a matter of public policy from making the submission of a flawed contract based on an ESA violation? It does seem to follow the sympathetic approach taken to this line of cases to date. Yet, no decision has affirmatively made this conclusion.

What might be the case in which it was the employee, negotiating on an equal playing field through counsel or otherwise with the employer, who insisted on inserting the offensive term? If the issue is one of public policy, should it be limited to the context of the employer’s drafting miscues ? Might such context remove the public policy concerns?

These issues hopefully will be defined soon.