Does the employee’s level of contract knowledge make a contract more enforceable? Who is on the hook for termination pay if a company has subsidiary or parent companies?
The Ontario Court of Appeal recently answered these questions in Rahman v. Cannon Design Architecture Inc. The bottom line of the decision is:
- an employee’s level of sophistication has no bearing on whether a termination clause is enforceable
- the language in with-cause termination provisions needs to be carefully worded and abide by requirements in the Employment Standards Act (“ESA”)
- subsidiary and parent companies of an employer can be considered “common employers” if there is a certain level of integration between the companies, making them jointly and severally liable to the employee.
Ms. Rahman was a “Senior Architect, Principal and Office Practice Leader” at CannonDesign for over four years. She was terminated without cause and sued her employer, Cannon Design Architecture Inc. (“CDAI“), as well as Cannon Design Ltd., and The Cannon Corporation, claiming damages for wrongful dismissal. She asked the court to declare that: (1) the with-cause termination provision in her employment contract violated the ESA and as a result, the entire termination section in her contract was void; and (2) all three companies were her common employers given that they were closely interconnected, and as a result, they should be jointly and severally responsible for the termination entitlements.
The Summary Judgment Decision
The judge dismissed the motion and ordered Ms. Rahman to pay $80,000 in legal costs to the respondents.
The judge rejected Ms. Rahman’s submission that the termination for cause provisions violated the ESA because:
- she had gotten independent legal advice about her employment offer and its terms;
- she was a “woman of experience and sophistication”; and
- the parties’ subjective intention was to comply with the ESA minimum standards.
The judge also concluded that Ms. Rahman had been employed by CDAI alone and dismissed the action against Cannon Design Ltd. and The Cannon Corporation. The judge found that CDAI was her only employer because it was the company that offered her employment and paid her. In his view, the fact that CDAI was a subsidiary within a business grouping did not justify a joint employer finding. In other words, the companies were not joined together as a group (which can often help employees get access to deeper pockets), but rather, only the one company was on the hook for the damages.
The Decision on Appeal
The Court of Appeal overturned the motion judge’s decision and concluded that:
- the with-cause termination provision in Ms. Rahman’s employment contract did violate the ESA and as a result, the termination section was void; and
- the 3 respondents were in fact to be grouped together as common employers and were jointly and severable liable toward Ms. Rahman.
The Respondents were Common Employers
In concluding that all three respondents were Ms. Rahman’s common employers, the Court of Appeal noted a high level of integration among the three companies. The Court noted many factors showing this integration and found that the respondents were sufficiently intertwined and exerted sufficient control over Ms. Rahman to be considered common employers. Stay tuned for an upcoming blog post diving deeper into this part of the decision.
The Termination Section Was Void
The Court of Appeal found that the termination provision violated the ESA, set it aside and substituted in a more generous common law award.
The Court found that the plain language wording of a termination provision should be looked at when determining whether it violates the ESA, rather than considering the level of sophistication of the employee, the employee’s access to independent legal advice, or the parties’ subjective intention.
The Court also noted that ESA notice and termination pay must be given for all terminations, even those with just cause, unless the termination falls within the “prescribed employees” exemption set out in the ESA Regulation 288/01. The “prescribed employee” exception includes those who have been fired because of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”
The termination provision in Ms. Rahman’s offer letter stated that no notice would be given if there was just cause to terminate her. It read as follows:
CannonDesign maintains the right to terminate your employment at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal.
The plain-language wording of Ms. Rahman’s just-cause termination provision gave the employers the right to terminate her without notice or payment in lieu of notice without limiting its scope to just cause terminations for wilful misconduct or other reasons contained in regulation 288/01. As a result, the provision was found to have violated the ESA.
The Court of Appeal referenced its findings in previous decisions such as Waksdale v. Swegon North America Inc. and Rossman v. Canadian Solar Inc., noting that if a termination provision in an employment contract violates the ESA, all of the termination provisions in the contract are invalid.
The Rahman decision is an important reminder that the surrounding circumstances and subjective intentions of parties do not override the plain language in termination provisions of employment contracts.
The decision is also a reminder that employees are entitled to the minimum amount of notice or pay in lieu of notice under the ESA upon termination, even upon termination with cause, unless they fall under the “prescribed employees” in the ESA’s Regulation 288/01. Employers will want to review their employment contracts and make sure their termination provisions are valid and enforceable.
Employers should also take note that if their subsidiary or parent companies have various factors that make them intertwined, these companies could be considered as common employers of an employee and be held jointly and severally liable toward this employee.
If you have any questions about what constitutes a common employer, or about terminations, please contact us!