"At any time" - Ontario Court of Appeal overturns Baker and Li

 Last year, I commented on a growing issue in Ontario where employment contracts permitting the employer discretion to terminate "at any time" were seen as non-compliant with employment standards legislation. I suggested that, at least in the Ontario context, there was a good argument that this was an incorrect read of the statutory construction.

Last week, the Ontario Court of Appeal addressed the issue in Baker v. Van Dolder and Li v. Wayfair, overturning the approach adopted by the lower courts: The language of "at any time" doesn't appear "to render legally effective a termination that is expressly prohibited by the ESA."

However, I have some comments on the analysis adopted by the ONCA here.

Li's contract went a step beyond "at any time", into "at any time and for any reason". In my view, that would be problematic on a principled perspective, as there absolutely are reasons for which an employer is not entitled to terminate an employment, and contract language entitling them to do so is inarguably void.

This requires a bit more in the way of analytical gymnastics from the ONCA, where the literal and plain language of the contract confers upon the employer an unfettered discretion, where the statute clearly fetters that discretion.

The analysis of the court is heavily laden with references to the intention of the parties - and most particularly to the intention of the employer - talking about things like declaratory statements in the contract of an intent to comply with the statute, or how drafting non-compliant language would be "self-defeating" because it couldn't be enforced. By finding that the parties didn't intend the contract language to allow for illegal terminations of employment, the Court of Appeal therefore interpreted the language - despite being non-compliance in its literal plain language meaning - as compliant.

An Important Clarification - Human Rights and Employment Standards Are Different

The Ontario Court of Appeal repeatedly references "the ESA, and other statutes", that restrict termination circumstances. There's a large category of statutes to think about here, but employment standards legislation operates differently, in a relevant sense for these exercises.

Human rights legislation operates notwithstanding contractual provisions: When my contract requires me to do something I'm unable to do for disability-related reasons, I'm entitled (within limits) to accommodation, and the contract term simply gets ignored. The possibility that a contract term may conflict with duties to accommodate doesn't render the contract term void; it's just that the duty to accommodate overrides the contract in cases of actual conflict.

By contrast, the ESA contains an explicit voiding mechanism, that means that any attempt to contract out of the requirements of the ESA becomes void ab initio - it doesn't wait for an actual conflict to arise between the employee's entitlements and the contract, but instead, the mere fact that the ESA fails to honour statutory minimums means that the clause is ineffective at the front end.

Under the ESA, there's a pretty finite class of circumstances where termination is actually prohibited - and it mainly turns on the proposition that you can't fire somebody for standing on their rights under the ESA.

A Shift to Intent-Based Analysis

In the traditional law of contract, contractual interpretation is very much about trying to divine, and give effect to, the intention of the parties as evidenced by the language of the contract.

The ONCA, in this decision, relies on these types of statements of contract interpretation principle, arising from commercial contract cases.

However, the treatment of the issue in employment law has long been more nuanced, staring with Machtinger, where the Supreme Court of Canada concluded that the intention of the parties cannot cure illegality of contract terms.

It's a function of the recognized power imbalance between the parties to an employment contract that, in most employment contracts, the employee cannot be fairly presumed to either (a) have the bargaining power to meaningfully influence the termination clause; nor (b) understand the legal impact of the clause. So when we start talking about things like the 'intention' of the parties to displace the implied term of reasonable notice, we're diving full on into 'legal fiction' territory, in a way that decades of employment law jurisprudence has resisted.

But where this decision moves from "unusually strong focus on mutual intention" into, in my view, "clear error of law" territory is in the way that legal compliance informs the intent analysis. Rather than focusing on the expected impact of the language of the contract they executed - what did the parties intend the contract to do and mean - the court instead looked for whether the parties intended the statute to be breached.

A Thought Experiment

Let's take a scenario of an illegal termination, and ask what the employees in this case would reasonably have understood their contract to say about it. So, for the sake of this exercise, let's assume that the employees are of average sophistication - able to read and understand the contract, and broadly familiar with their statutory entitlements, but don't necessarily understand that the contract can't override the statute. (This is one of the animating assumptions behind a lot of this area of law, again, going back to Machtinger: That to allow employers to try to contract out of statutory obligations compounds the vulnerability of employees who may feel bound by 'what they agreed to'.)

Suppose the employee weren't properly getting paid overtime under the statute, and made a complaint about it, and the employer reacted badly, ultimately terminating the relationship - not explicitly because of the complaint, but on some pretextual basis, under circumstances where, if you dig deep enough, you find that they're really motivated in part by the complaint, and where the employee kind of knows that from the outset.

If the average employee with Baker's contract language read their contract, and saw a right to terminate "at any time", I'd say there's a decent argument that they'd most likely say, "Yeah, they're entitled to terminate me at any time, but I understand that this doesn't mean that they can fire me because I made a wage complaint."

However, if the average employee looks at Li's contract language that says explicitly that the employer can terminate "for any reason", I don't think it's fair to assume that they'd come to the same conclusion. Parties without a strong awareness of how the statute operates - and this sometimes applies to employers too - are going to look at this language and conclude that they're within their contractual rights to terminate on that pretextual basis.

(To emphasize the problem of the Court's approach here, there are limits to many statutory rights, and the Court's analysis would read a great deal of content into the language of "for any reason" by impliedly carving out those specific limits: For instance, the ESA protects a leave of 2 bereavement days per calendar year for deaths of specified relations. The Court's interpretation of this language implies that "for any reason" doesn't include "took up to two days of bereavement leave in a calendar year"; but presumably would permit 'without cause' termination for an employee who asked to take an additional two days after the death of a second relative. So if you're asking, "Would the parties have reasonably understood 'for any reason' to allow the employer to dismiss without cause by reason of the employee's request to take bereavement leave", the Court's answer would imply "Sometimes but not always.")

Effects of Saving Clauses

The impact of saving clauses expressing an intention or expectation that everything will comply with the ESA has been controversial. On the one hand, language that says "We'll give you everything you're entitled to under the statute" can be read as guaranteeing the minimum. On the other hand, when that language conflicts with language that effectively says "We're going to give you less than your statutory entitlements", a broad declaration of compliance doesn't really fix the underlying problem in any material way.

The ONCA here puts a huge amount of weight on the contractual statements of intention to comply with the ESA. And then they go further to say that, because it would be "self-defeating" for the employer to craft non-compliant language, that can't be what they intended to do.

That goes further than any sound legal analysis can. Yes, all other things being equal, we should prefer the interpretation that's compliant with the statute - but to move past ostensibly non-compliant language, and save it based on an expectation that the parties 'intended' the language to be effective, is inconsistent with more than 3 decades of jurisprudence, including from the SCC.

Conclusion

While I ultimately agree with the disposition of Baker, I'm less copacetic about the outcome of Li, and the analysis overall is a vast departure from some pretty well-settled approaches to employment law.

While the panel opens the decision by adopting criticisms of the state of employment law as having myriad inconsistent interpretations of the enforceability of employment contract terms, leading to uncertainty, what they've actually done here is apply a soft analysis of 'intent' that appears more focused on the question of "did the parties intend the contract to breach the statute?", in a way that's going to open up an absolute floodgate of cases of employers trying to defend plainly-illegal language on the basis of "we didn't intend to breach the ESA, and so the effect of our illegal language should be read down to comply with the Act."

I expect the parties to seek an appeal to the SCC; while the SCC grants leave to appeal in only a fairly small minority of cases, I would tend to think that this may be a pretty good case for the SCC to weigh in on.

If they don't, then my prediction is that there's going to be a period where this case introduces a fair bit of unpredictability and inconsistency in the law, but one of two things is going to happen when the "intent-based" questions start working their way back up to the ONCA: Either the ONCA is going to find some thin way of factually distinguishing all those cases from this one (as they did for Techform), that there's something specific and unspoken about the intention of the parties in this case that differs from what can usually be presumed; OR they're going to come back and say, "Wait, that's not what we meant" (as they did in Minott, mitigating the effect of Cronk).

This isn't a case of a pendulum reaching its apex and starting to move incrementally in the other direction; this is a reactionary decision that's so far out-of-step with the body of established law that it can't easily be reconciled with the prevailing practice or principles. Paired with the decision released the following day in Wigdor - commentary to follow - counsel would be well-advised to exercise caution when relying on this case.

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The author is an in-house lawyer in Alberta. Views are the author's alone. This article does not contain legal advice, but general legal information. If you have a legal issue, consult a lawyer.