Employment Contract Can Be Unenforceable Even If It Complies with the ESA for the particular employee in the particular circumstances
In the recent decision in Garreton v Complete Innovations Inc., 2016 ONSC 1178 [Garreton], the Ontario Superior Court of Justice disagreed with the recent line of reasoning that the contract of employment, particularly the termination provision must conform to provincial employment standards legislation for the “particular employee, in the particular circumstances.” Instead, the Divisional Court upheld the long-standing law in Machtinger v HOJ Industries Ltd.  1 SCR 986 [Machtinger]. indicating that the employment contract must be considered at the time it is executed – potential violation in the future is sufficient to render the contract void and unenforceable despite the fact that the contract is in compliance with the legislation for the particular employee in the particular circumstances of his or her termination.
Ms. Garreton was employed as a trainer with Complete Innovations Inc. (“CI”) for a period of two years, at which point her employment was terminated for cause. At the time of termination, Ms. Garreton was 43 years old and earning a salary of $63,500 plus 10 percent bonus and benefits.
Ms. Garreton’s termination resulted from an incident with a co-worker, where Ms. Garreton grabbed the co-worker’s wrist trying to prevent her from taking a bagel that she ordered for a training session. Ms. Garreton was then suspended with pay for two days for “retaliating with physical violence.”
Prior to this incident, Ms. Garreton had already been given two disciplinary warnings for insubordination to a superior and for a complaint from a client about her attitude.
When Ms. Garreton returned to work after suspension, she was immediately terminated for cause. The termination letter relied on the bagel incident and the two previous incidents, for which she received warning letters.
The trial judge noted that Ms. Garreton had already been disciplined for the bagel incident by being suspended. The trial judge determined that terminating her employment after having already disciplining her constituted double jeopardy. Accordingly, the trial judge found that there was no just cause for termination.
When determining the appropriate notice period, the trial judge noted that the termination provision in Ms. Garreton’s employment contract set out the length of notice periods based on the length of employment. However, the trial judge further noted that the termination provision also outlined enumerated events, which would constitute just cause for termination. Nevertheless, at trial CI did not rely on the enumerated incidents of cause listed in the termination provision. Instead, it submitted that Ms. Garreton breached s. 2(1)(3) of Regulation 228/01 of the Employment Standards Act 2000, SO 2000, c. 41 [ESA], which provided for “willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer.”
Therefore, the trial judge determined that since CI did not choose to rely on the provisions of the employment contract to terminate for cause, ti was not necessary to determine whether the whole termination provision, including the length of the notice periods set out in the provision, are enforceable in this case. The trial judge then proceeded to determine the length of the termination notice pursuant to the common law standards. Accordingly, Ms. Garreton was awarded compensation based on reasonable notice period of five months.
Issues on Appeal
On appeal, CI argued that the trial judge erred in awarding Ms. Garreton a five-month notice period in accordance with the common law standards, while the termination clause in her employment contract clearly provided for a two-week notice period.
Indeed, Ms. Garreton’s employment contract provided that an employee like Ms. Garreton, of more than one year but less than three years of employment, is entitled to a two-week notice period. This part of the employment contract was in compliance with section 57 of the ESA.
However, the last clause of the termination provision also provided that where an employee has been employed for more than three years, he or she would be entitled to a one-week notice for each additional year up to a maximum of eight weeks including all benefits and allowances as required by the ESA.
Ms. Garreton argued that this last clause, although not applicable to her, is in violation of ss. 64 and 65 of the ESA, because it limits pay in lieu of notice for employees who have been employed with CI for five years or more to eight-week period. Sections 64 and 65 of the ESA provide that where an employee has five or more years of employment and the company has a payroll of $2.5 million or more, the employee is entitled to effectively a further week for each year of employment for severance pay over the above termination pay. CI, in this case, had payroll of $2.5 million.
Ms. Garreton argued that although she had only been employed for less than three years, the termination provision could potentially apply to her. Therefore, the whole termination provision should be void and unenforceable in the circumstances of this case.
Decision on Appeal
Pattillo J of the Superior Court of Justice, agreed with Ms. Garreton’s position that where the termination clause is unenforceable for a CI employee of more than five years, it is also unenforceable for Ms. Garreton who was an employee of less than three years.
Pattillo J came to this decision despite the fact that the part of termination provision applicable to Ms. Garreton’s individual circumstances at the time of her termination was less than three years.
In reaching this decision, Pattillo J disagreed with the recent decision in Ford v. Keegan, 2014 ONSC 4989, in which Price J held that the contract of employment must conform to provincial employment standards legislation for the particular employee, in particular circumstances.
Instead, Pattillo J reinforced Justice Low’s position in Machtinger by setting out that the employment contract must be considered at the time it is executed. This means that if the termination provision is not onside with notice provisions and severance provisions of the ESA at the outset, then it is void and unenforceable. In other words, potential violation in the future is sufficient to determine that the termination clause is void and unenforceable, even though the part of the provision applicable to the particular circumstances of the terminated employee is in compliance with the ESA at the time of termination.
Accordingly, on the facts of this case, the Superior Court of Justice found the termination provision to be void and unenforceable.
The Issue of Just Cause
CI also raised the issue with the fact that the trial judge referred to some outside research to her define progressive discipline in order to determine whether or not the bagel incident, in light of the two previous disciplinary warnings, amounted to just cause for termination.
Pattillo J noted that the issue of progressive discipline was argued by the parties. Therefore, the trial judge was entitled to refer to some outside research for help. He further elaborated: “the fact that counsel have not done a proper job in researching an issue does not preclude the court from further research” (para#). Interestingly, he also noted that there was no requirement that the parties be given an opportunity to respond to the research.
Pattillo J further reaffirmed that the question of cause is a question of fact and should be reviewed on a palpable and overriding error standard. Pattillo J noted that the trial judge’s characterization of the incidents and determination that the previous warning letters did not constitute progressive discipline, because CI did not investigate the incidents and did not provide Ms. Garreton with any direction on how to avoid the situation in the future, was completely appropriate and correct.
Accordingly, the appeal was dismissed with costs to the respondent on a partial indemnity basis.