{"id":6154,"date":"2022-06-28T11:40:30","date_gmt":"2023-08-12T08:04:04","guid":{"rendered":"https:\/\/www.millerthomson.com\/ontario-court-appeal-overturns-decision-just-cause-termination-provision\/"},"modified":"2025-12-30T18:20:38","modified_gmt":"2025-12-30T23:20:38","slug":"ontario-court-appeal-overturns-decision-just-cause-termination-provision","status":"publish","type":"post","link":"https:\/\/www.millerthomson.com\/en\/insights\/labour-and-employment\/ontario-court-appeal-overturns-decision-just-cause-termination-provision\/","title":{"rendered":"Ontario Court of Appeal overturns decision upholding just cause termination provision"},"content":{"rendered":"\n<p>Last year, we reported on the <a href=\"https:\/\/www.millerthomson.com\/en\/publications\/communiques-and-updates\/labour-and-employment-communique\/september-24-2021-labour\/ontario-court-upholds-just-cause-termination-provision\/\">Ontario Superior Court\u2019s decision in <em>Rahman v. Cannon Design Architecture Inc.<\/em><\/a> (the \u201c<em>Rahman <\/em>decision\u201d), in which the Court upheld a contractual termination provision on the basis of the relative equality of bargaining power between the plaintiff and her employer, among other reasons. This was a welcome decision for Ontario employers as it appeared to address the absurdity of the effect of the Ontario Court of Appeal\u2019s decision in <a href=\"https:\/\/www.canlii.org\/en\/on\/onca\/doc\/2020\/2020onca391\/2020onca391.html?autocompleteStr=waksdal&amp;autocompletePos=1\" target=\"_blank\" rel=\"noopener\"><em>Waksdale v. Swegon North America Inc.<\/em><\/a> (the \u201c<em>Waksdale <\/em>decision\u201d). In <em>Waksdale<\/em>, the Court found that although drafted properly, a termination <em>without <\/em>cause provision in an employment contract was unenforceable because the termination <em>with <\/em>cause provision in the same contract provided for termination without notice in circumstances broader than those contemplated by the <em>Employment Standards Act, 2000<\/em> (the \u201cESA\u201d).<\/p>\n\n\n\n<p>Recently, the Ontario Court of Appeal overturned the <em>Rahman <\/em>decision and echoed that the principles outlined in <em>Waksdale <\/em>are here to stay.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The Ontario Superior Court\u2019s Decision<\/h2>\n\n\n\n<p>In <em>Rahman<\/em>, Ms. Rahman\u2019s employment was terminated <em>without <\/em>cause after four years of employment. Based on the <em>Waksdale<\/em> decision, she argued that the termination <em>without <\/em>cause provision in her employment contract was unenforceable because the termination <em>with <\/em>cause provision permitted termination without notice in circumstances broader than those contemplated by the ESA.<\/p>\n\n\n\n<p>In the <em>Rahman<\/em> decision, Justice Dunphy disagreed and distinguished <em>Waksdale, <\/em>finding that, among other reasons, the termination <em>without <\/em>cause provision in Ms. Rahman\u2019s employment contract was enforceable and displaced her right to common law reasonable notice. In doing so, the Court held that there was no basis to apply a strict construction approach to the termination provisions in Ms. Rahman\u2019s employment contract for several reasons, including that:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Rahman received independent legal advice prior to signing the employment contract;<\/li>\n\n\n\n<li>Rahman was sophisticated, and there was no disparity in bargaining power; and<\/li>\n\n\n\n<li>the parties\u2019 subjective intention was to comply with the ESA minimum standards.<\/li>\n<\/ul>\n\n\n\n<p>Justice Dunphy also dismissed Ms. Rahman\u2019s submission that the defendants, Cannon Design Architecture Inc. (\u201cCDAI\u201d), Cannon Design Ltd. and The Cannon Corporation, who are interrelated corporate parties, were Ms. Rahman\u2019s common employers, and thus jointly and severally liable for any damages payable to her. The Court held that CDAI alone was Ms. Rahman\u2019s employer.<\/p>\n\n\n\n<p>Ms. Rahman exercised her right of appeal.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The Court of Appeal\u2019s Decision<\/h2>\n\n\n\n<p>On appeal, the Court overturned the <em>Rahman <\/em>decision, finding that Justice Dunphy erred when he allowed considerations of the parties\u2019 subjective intention to not contravene the ESA, together with Ms. Rahman\u2019s level of sophistication and access to independent legal advice prior to signing the employment contract, to override the plain language in the termination provisions at issue.<\/p>\n\n\n\n<p>In coming to its decision on this point, the Court reiterated that if one part of a termination provision in an employment contract violates the ESA, the remaining parts of the termination provision in the contract are invalid. As it did in <em>Waksdale<\/em>, the Court stated that it did not matter that the employer had not purported to terminate the employee for just cause. The just cause provision in the employment contract violated the ESA. And the invalidity of that provision rendered the other part of the termination provision, including the without cause portion, unenforceable.<\/p>\n\n\n\n<p>Lastly, the Court set aside Justice Dunphy\u2019s finding that CDAI alone was Ms. Rahman\u2019s employer. Writing for the Court, Justice Gillese referred to the Court\u2019s earlier decision in <a href=\"https:\/\/www.canlii.org\/en\/on\/onca\/doc\/2021\/2021onca385\/2021onca385.html?autocompleteStr=o%27reilly%20v%20cle&amp;autocompletePos=1\" target=\"_blank\" rel=\"noopener\"><em>O\u2019Reilly v. ClearMRI Solutions Ltd<\/em><\/a><em>.,<\/em> which clarified that the test to determine whether corporations are common employers requires evidence of an intention to create an employer\/employee contractual relationship between the individual employee and the related corporate parties.<\/p>\n\n\n\n<p>Turning to the facts, the Court found that, based on the undisputed evidence, assessed objectively, it was \u201cbeyond question\u201d that the respondents were Ms. Rahman\u2019s common employers. The Court pointed to the following list of factors, and others, to show that the respondents were part of an interrelated corporate group, \u201cCannonDesign,\u201d that intended to create an employer\/employee relationship with Ms. Rahman:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Rahman\u2019s offer letter was printed on \u201cCannonDesign\u201d letterhead;<\/li>\n\n\n\n<li>A human resources employee with The Cannon Corporation sent Ms. Rahman her offer letter and employment contract;<\/li>\n\n\n\n<li>The Cannon Corporation played a significant role in establishing Ms. Rahman\u2019s compensation and administering payment of her compensation;<\/li>\n\n\n\n<li>Rahman\u2019s annual bonus was determined by The Cannon Corporation and paid by way of shares in The Cannon Corporation;<\/li>\n\n\n\n<li>CannonDesign required many of its offices to be interdependent and work in conjunction with one another;<\/li>\n\n\n\n<li>CannonDesign\u2019s website listed all employees, including Ms. Rahman;<\/li>\n\n\n\n<li>The letter confirming Ms. Rahman\u2019s termination of employment was on CannonDesign letterhead; and<\/li>\n\n\n\n<li>The Executive Director of The Cannon Corporation was Ms. Rahman\u2019s direct supervisor.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\">Takeaways for employers<\/h2>\n\n\n\n<p>This decision makes clear that <em>Waksdale <\/em>is here to stay and that Ontario courts will continue to review all components related to termination in employment agreements for strict compliance with the ESA. Employers should continue to be mindful of the words they put on paper, and seek legal advice to review and reconsider the language in their existing employment agreements and templates to address potential concerns.<\/p>\n\n\n\n<p>Further, this decision may lead to an increase in the number of joint liability claims being advanced against employers in Ontario and their closely related companies. Employers should seek advice on their corporate arrangements to limit the potential for claims of this nature.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Last year, we reported on the Ontario Superior Court\u2019s decision in Rahman v. Cannon Design Architecture Inc. (the \u201cRahman decision\u201d), in which the Court upheld a contractual termination provision on the basis of the relative equality of bargaining power between the plaintiff and her employer, among other reasons. This was a welcome decision for Ontario [&hellip;]<\/p>\n","protected":false},"author":100,"featured_media":14369,"parent":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[542],"insight-format":[416],"class_list":["post-6154","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-labour-and-employment"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.1.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Ontario Court of Appeal overturns decision upholding just cause termination provision | Miller Thomson<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.millerthomson.com\/en\/insights\/labour-and-employment\/ontario-court-appeal-overturns-decision-just-cause-termination-provision\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ontario Court of Appeal overturns decision upholding just cause termination provision | Miller Thomson\" \/>\n<meta property=\"og:description\" content=\"Last year, we reported on the Ontario Superior Court\u2019s decision in Rahman v. 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