Recent Decision Underscores Importance of Clarity in Employment Contracts

In Henderson v Slavkin, 2022 ONSC 2964, the Ontario Superior Court of Justice held that the Plaintiff’s employment contract was invalid for contravening the Employment Standards Act, 2000, SO 2000 c 41 (“ESA”). The contract was invalidated as a result of illegal conflict of interest and confidential information provisions that stated the Plaintiff’s employment would be terminated for cause and without notice if either provision was breached. As a result, the Plaintiff was found to have been wrongfully dismissed and was awarded common law notice.

This decision serves as further notice to employers to ensure that their employment agreements are clear, precise, and in strict compliance with the ESA.

The Facts

The Plaintiff had been dismissed without cause by the Defendants after the Defendants retired and closed their practice. The Plaintiff received six months of working notice – an amount that exceeded her minimum ESA notice entitlements.

At trial, the Plaintiff argued that her employment contract violated the ESA on several grounds and was invalid. The Plaintiff claimed she was instead entitled to common law notice of termination and should have received 18 months’ notice.

The Plaintiff claimed in part that her employment agreement was invalid due to its conflict of interest and confidential information provisions. These provisions stated:

18. Conflict of Interest. You agree that you will ensure that your direct or indirect personal interests do not, whether potentially or actually, conflict with the Employer’s interests. You further covenant and agree to promptly report any potential or actual conflicts of interest to the employer. A conflict of interest includes, but is not expressly limited to the following:

(a) Private or financial interest in an organization with which does business [sic] or which competes with our business interests;

(b) A private or financial interest, direct or indirect, in any concern or activity of ours of which you are aware or ought reasonably to be aware;

(c) Financial interests include the financial interest of your parent, spouse, partner, child or relative, a private corporation of which the [sic] you are a shareholder, director or senior officer, and a partner or other employer;

(d) Engage in unacceptable conduct, including but not limited to soliciting patients for dental work, which could jeopardize the patient’s relationship with us.

A failure to comply with this clause above constitutes both a breach of this agreement and cause for termination without notice or compensation in lieu of notice.

19. Confidential Information. You recognize that in the performance of your duties, you will acquire detailed and confidential knowledge of our business, patient information, and other confidential information, documents, and records.

You agree that you will not in any way use, disclose, copy, reproduce, remove or make accessible to any person or other third party, either during your employment or any time thereafter, any confidential information relating to our business, including office forms, instruction sheets, standard form letters to patients or other documents drafted and utilized in the Employer’s practice except as required by law or as required in the performance of your job duties.

For clarity, confidential information includes, without limitation, all information (in written, oral, tape, cd rom, diskette, and USB keys or any electronic form) which relates to the business, affairs, properties, assets, financial condition and plans, concerning or relating to the Employer, our dental practice or patients and specifically includes all records, patient files, patient lists, patient names, patient addresses, patient telephone numbers, email addresses, invoices and/or statements, daily appointment sheets, radiographs, marketing information and strategies, advertising information and strategies, and financial information,

In the event that you breach this clause while employed by the Employer, your employment will be terminated without notice or compensation in lieu thereof, for cause.

This provision shall survive the termination of this Agreement.

The Decision

The Court found that the above provisions contravened the ESA and invalidated the employment contract.

The Court determined that the conflict of interest provision would have terminated the Plaintiff for cause and without any notice in the event the provision was breached, yet did not provide sufficient clarity over which situations would constitute a conflict of interest and result in termination for cause. Specifically, the Court noted that sub-paragraph (a) was missing words, leading to ambiguity over what was meant by the parties. Sub-paragraphs (b), (c), and (d) were similarly found to be overly broad, unspecific, and ambiguous. As a result, the conflict of interest provision was found to lack the specificity needed to establish “wilful misconduct” under the ESA, and thus illegally denied the Plaintiff any form of notice in the event of a breach.

Second, the Court found that the confidential information provision threatened termination for cause, yet did not sufficiently delineate the circumstances in which the provision would be triggered. For instance, the Court reasoned that in order for the provision to comply with the ESA’s wilful misconduct standard, it must not lead to termination without notice in circumstances where the disclosure of confidential information was unintentional or trivial. Because the confidential information clause did not outline these situations, the Court found the clause to violate ESA minimum standards.

Because the contract was found to contain provisions that contravened the ESA, the entire agreement was invalid. As a result, the Plaintiff was entitled to receive common law notice upon termination, which the parties agreed should have been 18 months.

The Court also dismissed the Defendants’ argument that the Plaintiff’s CERB payments following her termination should be deducted from her damage award. The CERB benefit was interpreted by the Court to only apply to wage losses arising due to COVID-19, rather than through breach of an employment contract. Because the Plaintiff was dismissed due to the Defendants’ retirement rather than the COVID-19 pandemic, the Plaintiff’s CERB benefit was not a “collateral benefit” that would reduce the damage award.

Significance

This case emphasizes the need for employers to take special care in ensuring their employment contracts are clear and precise, and wholly comply with the terms of the ESA. Special attention should be paid to any provision that contains termination language.

For advice specific to your situation, consider contacting your regular lawyer at Rae Christen Jeffries LLP.

tim

Tim Schjerning