Executive Summary: Key Legal and Evidentiary Issues

• Termination clause for "cause" allowed dismissal without notice in circumstances broader than permitted by the Employment Standards Act, 2000 (ESA).

• Clause failed to limit termination without notice to cases of "wilful misconduct", as required under ESA regulations.

• Use of open-ended language (“shall include but is not limited to”) unlawfully expanded the employer’s discretion to terminate without notice.

• Ontario Court of Appeal reaffirmed that non-compliance in one termination clause voids all related termination provisions (Waksdale precedent).

• Township’s argument to sever the “for cause” clause and preserve the “without cause” clause was rejected.

• Damages were awarded for the full fixed term of the employment contract due to the invalidity of all termination provisions.

Facts of the Case

Karen Dufault was employed under a fixed-term contract with the Township of Ignace. She was terminated on a “without cause” basis and subsequently filed a claim for wrongful dismissal. At issue was the enforceability of the employment contract’s termination provisions, specifically whether they violated the minimum standards set out in Ontario’s Employment Standards Act, 2000 (ESA).

The contract contained both “for cause” and “without cause” termination clauses. Dufault argued that both clauses were illegal because they attempted to contract out of the ESA. The Township contended that the contract complied with the ESA and that Dufault had been provided with her entitlements under the Act. Alternatively, the Township requested that even if the “for cause” clause was invalid, it should be severed and the “without cause” clause preserved. Notably, the Township asked the Court of Appeal to depart from its own precedent in Waksdale v. Swegon North America Inc. (2020), which links the enforceability of all termination clauses.

Legal Findings and Outcome

The Ontario Court of Appeal dismissed the appeal and upheld the summary judgment that awarded Dufault $157,071.57 in damages for wrongful dismissal.

The Court found that the “for cause” clause in the employment contract violated the ESA because:

• It allowed for termination without notice or pay in situations that did not rise to the level of “wilful misconduct,” the only standard under which such termination is permitted without notice under section 2(1)3 of Ontario Regulation 288/01.

• Specifically, the clause included grounds such as a failure to perform services without prior approval, which does not meet the wilful misconduct threshold.

• The clause also used broad language—“shall include but is not limited to”—which further expanded its reach beyond the ESA’s allowable exceptions.

Given these deficiencies, the Court held that the “for cause” clause was void. Relying on its decision in Waksdale, the Court reiterated that termination provisions in employment contracts must be read together. If one is found to contravene the ESA, all termination clauses become unenforceable—even if the employee was terminated without cause. As such, the validity of the “without cause” clause was rendered irrelevant.

The Court also noted that as a three-judge panel, it was bound by Waksdale and could not reconsider or overrule that decision. The appellant’s request for a five-judge panel to revisit Waksdale had been previously denied.

Because both termination clauses were unenforceable, the Court affirmed that Dufault was entitled to damages for the remainder of her fixed-term contract. It awarded her costs of $15,000 for the appeal.