A year in review: Key 2023 employment law decisions

As 2023 comes to a close, it is time to look back on important cases that shaped the employment law landscape over the past year. The cases highlighted below serve as helpful reminders of the potential costs associated with faulty employment agreements, and poor behaviour by employers.

Termination Provisions

In 2023, the Ontario courts continued to closely scrutinize termination provisions in employment agreements. These cases act as a reminder that employers should take care to ensure that employment agreements are drafted in accordance with Ontario’s Employment Standards Act, 2000 (“ESA”) (or applicable employment standards legislation) and to ensure that agreements are current.

• Tan v Stostac Inc., 2023 ONSC 2121: In Tan, the Ontario Superior Court found the entire termination provision of an employment agreement to be void because the just cause portion of the provision violated the ESA. This was the finding despite the fact that the “without cause” provisions contained an “ESA saving” clause, which provided that the provisions of the ESA would be “incorporated” and “prevail if greater.”

In this case, the plaintiff was terminated for reasons of economic hardship caused by COVID-19. The employment agreement contained a termination provision that gave the employer the right to terminate the agreement without notice or pay for “any just cause.” The Court held that this violated Ontario’s employment standards legislation, which provides a threshold for termination without advance notice of “willful misconduct, disobedience or willful neglectful duty that is not trivial and has not been condoned by the employer.”  The Court further held that the “ESA saving” provision did not save the clause. Following the Ontario Court of Appeal decision in Waksdale v. Swegon, the Court held that the invalidity of the just cause provision rendered the without cause provision unenforceable as well. The plaintiff was awarded 7-months’ pay in lieu of reasonable notice.

• Celestini v. Shoplogix Inc., 2023 ONCA 131: In Celestini, the plaintiff argued that the termination provisions in his employment agreement were unenforceable because the substratum of the 2005 contract had disappeared due to material changes in his employment duties. As a result, he argued he was entitled to reasonable notice at common law.

The Ontario Court of Appeal agreed, finding that an employment agreement may not be enforceable if the other terms and conditions of employment have substantially changed in the interim. In this case, there had been significant changes to the employee’s duties since the employment agreement was signed in 2005. The Court held that, even though the employee’s job title remained the same, his new role had changes that were “substantial and fundamental,” and that the substratum doctrine (that the employment relationship evolves over time) applied. As a result, the plaintiff was awarded damages for failure to provide 18 months’ reasonable notice of termination.

Notably, the employment agreement in this case did not include a clause that the agreement applied regardless of any changes in duties. If it had, the substratum doctrine should not apply. In this regard, the Court specifically noted that a written employment contract “may oust the application of the changed substratum doctrine, if it expressly provides that its provisions, including its termination provisions, continue to apply even if the employee’s position, responsibilities, salary or benefits change.” (para. 35)

Fixed-Term Contracts

Employers should be especially careful when creating fixed-term contracts, and consider whether it is worth the potential risk. Employers must be aware of the obligations such contracts could impose, including the requirement to pay out the remainder of the fixed term if the contract is terminated early.

• Kopyl v. Losani Homes (1998) Ltd., (21 June 2023), Hamilton CV-23-81238 (Ont. S.C.J.): In Kopyl, the Court affirmed that fixed term contracts do not violate the ESA or the common law. In this case, an employment agreement was terminated before the end of the one-year fixed term.

The Ontario Superior Court held that, just because a contract establishes a fixed term of the contract, it is not by nature a termination clause.  Further, if a fixed term contract has an earlier termination clause that is invalid for some reason, the concept of reasonable notice of termination did not apply, and damages were ordered for the balance of the term.

• Monterosso v. Metro Freightliner Hamilton Inc., 2023 ONCA 413: In this case, the Ontario Court of Appeal ruled that fixed-term independent contractors have a duty to mitigate their damages in the event that the contract gets terminated before the end date.

In this case, an independent contractor was hired on a 72 month fixed-term contract. He was terminated without cause after only 7 months. There was no termination provision in the agreement, so the trial judge awarded the independent contractor damages for the remaining 65 months of the term. The defendant appealed on the basis that the trial judge erred in holding that the respondent did not have a duty to mitigate. The Court of Appeal held that the trial judge erred, and there was a duty to mitigate, however, the appellants could not prove that the respondent failed to meet his duty to mitigate.

Increased Notice Periods

In 2023, the Ontario Court of Appeal upheld some awards assessing the reasonable notice period exceeding 24-months, which is generally viewed as the maximum. These cases serve as a reminder to review older, potentially forgotten, employment agreements as the costs may be greater than once anticipated.

• Milwid v. IBM Canada Ltd., 2023 ONCA 702: In Milwid, an employee with 38 years of service in a managerial role was dismissed without notice. The motion judge considered the level of his compensation, the fact that it was an uncertain economy, and the technical nature of his skills, which were particular to the employer’s business, to support a 26 month reasonable notice period. One additional month was awarded due to the fact that the employee was dismissed during the COVID-19 pandemic, which was an exceptional circumstance. The Court of Appeal upheld the award.
• Lynch v. Avaya Canada Corporation, 2023 ONCA 696: In Lynch, an employee with 38 years of service was dismissed without notice. Reasonable notice was assessed at 30 months. The Court of Appeal upheld the award noting that “exceptional circumstances” can allow for an award of damages exceeding 24 months. In this case, these circumstances included the employee’s specialization and skills that were tailored to his job with the employer, being identified as a “key performer” by the employer, and the scarcity of similar jobs in his place of residence.

It is only in the most exceptional cases that a notice period of more than 24 months should be assessed. These outlier cases should not impact employers’ assessments of what is reasonable in the circumstances.

Award for Moral Damages  

As always, employers should act in good faith and with due courtesy when terminating employees, and ensure that they fulfill their obligations to employees. In a final case of interest, the employer was ordered to pay moral damages to a terminated employee arising from the manner of his termination.

• Teljeur v. Aurora Hotel Group, 2023 ONSC 1324: In Teljeur, the plaintiff was awarded $15,000 in moral damages on the grounds that the employer acted in bad faith in the course of termination. The employee had recorded the termination meeting surreptitiously and this recording was considered by the Court as evidence. The Court found that the employer had behaved in an “untruthful, misleading or unduly insensitive” manner. Contrary to the ESA, the employer did not provide written notice of termination, even though the employee had requested it multiple times. The employer also delayed paying his ESA entitlements and reimbursing him for his business expenses. Additionally, the employer paid the employee a different amount of severance than what he was told he would be paid in the meeting.

As always, please reach out to one of our Labour & Employment lawyers for assistance with drafting employment contracts, and advice on hiring and termination to avoid such pitfalls.