Ontario court scrutinizes employer’s termination provisions, failure to assist employee’s job search

In De Castro v. Arista Homes Limited, 2024 ONSC 1035, the Ontario Superior Court of Justice was called on to interpret a termination for cause contractual provision in the context of a plaintiff ex-employee’s summary judgment motion. The Court determined that the provisions at issue went beyond the purview of the Employment Standards Act, 2000 (the ESA). In particular, the Court took issue with the definition of “cause” contained in the employment agreement, and the agreement’s reference to a breach of the employment agreement, as being grounds for termination for cause.

This case encourages employers to draft employment agreements, and specifically termination provisions, using the exact language of the ESA, and sets a notable standard for mitigation that requires an employer to play an active role in the job-hunting process for terminated employees.

Factual background

The plaintiff was terminated by the defendant employer on October 26, 2020 during the height of the pandemic. At the time of termination, the plaintiff was 49 years old and held the position of décor store manager. She was employed for approximately five years and earned an annual salary of $80,000 (plus benefits), and an annual bonus of $5,000 at the time of termination.

Issues

The plaintiff moved for a summary judgment which the defendant opposed based on unfairness, arguing 

• this was a simplified procedure case in which cross-examinations on affidavits were not permitted
• the plaintiff’s written employment agreement excluded common law notice, limiting her to statutory severance pay
• the plaintiff had failed to mitigate her damages

Decision

On the first issue, the Court-ordered timetable for the motion provided for cross-examinations, notwithstanding the ordinary practice. The timetable amounted to a binding court order that the defendant failed to appeal at the time of issue.

The Court found the language of the termination provision at issue to be broader than the ESA and, at minimum, ambiguous. Further, the defendant failed to provide adequate evidence to support a finding that the plaintiff failed to mitigate her damages.

The Court awarded the plaintiff damages equivalent to eight months of common law reasonable notice (plus a 10% valuation for benefits lost during the notice period).

Termination for cause

The plaintiff argued — and the Court agreed — that the phrase “Cause shall include” used in the employment agreement ran afoul of the ESA because it broadened the definition beyond the narrow circumstances contained in the legislation to include the common law definition.

The defendant unsuccessfully argued that Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, militated against an overly technical interpretation of the termination provisions. Instead, the Court applied Sattva to support the principle that the contract must be read as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of contract formation. This was not an overly technical approach in the eyes of the Court.

The Court also took issue with the agreement’s explicit inclusion of a breach of the employment agreement as grounds to terminate for cause. The defendant argued that the breach of the employment agreement would need to be wilful to amount to termination, which would otherwise bring the wording of the clause into compliance with the ESA. The Court considered hypothetical breaches of the employment agreement to illustrate the overly broad character of this ground for termination including, for example, if an employee wilfully started work at a time other than prescribed in the employment agreement.

Employer’s assistance in mitigating damages

The Court stated that employers who want to argue that a former employee has failed to mitigate damages should provide evidence of assistance in the job search, including job counselling, leads for positions, and reference letters. The Court reviewed minimal evidence from the defendant that took the form of several LinkedIn profiles of individuals who obtained positions during the period the plaintiff was unemployed. Notably, the defendant’s evidence lacked any references to jobs or positions available to the employee at the time of termination. The defendant also belabored the fact that the plaintiff’s job search summary did not show a single application until November 2021 (she was terminated in October 2020). In other words, she did not apply to a single job during the eight-month notice period claimed in this proceeding. The plaintiff shared that her daughter had been diagnosed with cancer and passed away in October 2021. The Court determined this to be a reasonable circumstance for a delayed job search.

What is at issue is the actual time it takes the plaintiff to find new employment regardless of when the job search begins. The plaintiff need only be reasonable under the circumstances, not perfect.