Canadian Employers Should Carefully Review Employment Agreements in Light of Recent Ontario Case

Canadian employers should carefully review the forms of employment agreements they use following a recent decision by the Ontario Superior Court of Justice.

In Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”) an employee, Dufault, sued her employer for wrongful dismissal.  The employer, the Township of Ignace, acted according to the termination provision in Default’s employment agreement. The agreement permitted the Township to terminate employment without cause in its ‘sole discretion’ and at ‘any time’.   As many commentators have pointed out, this language, or language similar to it, is found in most Canadian employment agreements.

The Court found the language in the termination provision contrary to the Ontario Employment Standards Act (ESA). The ESA provides specific instances in which an employer may not terminate an employment agreement. The Court interpreted these instances as limiting the ability to terminate employment at ‘any time’ and in the employer’s ‘sole discretion’. The Court found the termination provision to be invalid and awarded significant monetary damages to the employee.

Coming on the heals of several groundbreaking cases in recent years, Dufault represents a further erosion of the enforceability of termination provisions in Canadian employment agreements.  Employment agreements that have language similar to the language in Dufault are almost certainly going to be challenged going forward, potentially resulting in employees receiving notice and/or damages in excess of what the employment agreement provides on its face.

Employers are encouraged to seek legal advice to review the enforceability of their employment contracts and, if necessary, get assistance to migrate employees to a new form of agreement.