This is Part 2 of our two-part discussion of notable employment law decisions of 2021.
3. The Post-Waksdale Cases
Last year, the Ontario Court of Appeal released the landmark decision of Waksdale v. Swegon North America, 2020 ONCA 391 (“Waksdale”), which held that a “just cause” termination provision in an employment contract that violated the ESA rendered an otherwise legal “without cause” termination provision unenforceable, despite there being a severability clause in the contract.
This year, the Superior Court of Justice departed from Waksdale in the case of Rahman v. Cannon Design Architecture Inc., 2021 ONSC 5961 (“Rahman”). In that case, the court held that a “for cause” termination provision that arguably violated the ESA did not invalidate a “without cause” termination provision if the employer and employee had equality in bargaining power when negotiating the contract and displayed a mutual intention to comply with the ESA.
The court found that the termination clause in question (which stated the employer could terminate without notice or payment in lieu thereof where the employee engaged in “conduct that constituted just cause for summary dismissal”) did not violate the ESA. This aspect of the decision is important because, in other cases, courts had considered that type of language to have contravened the Act. However, the court in Rahman held that interpreting the phrase to imply a standard below the ESA was “illogical” where there was evidence, as in the case here, that the parties intended to comply with the Act. In this case, there was “savings language” which repeatedly stated the employee would receive no less than the minimum amounts required under the ESA, which displayed the parties’ mutual intention to comply with the Act. Rahman’s reliance on “savings language” to save the clause is also something to note because, in the past, courts have rarely enforced illegal termination clauses on those grounds.
While Rahman was a welcome decision for many employers, as it demonstrated that a termination clause which arguably contravened the ESA would nonetheless be upheld, ultimately, the law on the matter was not settled. A month after Rahman was released, the courts came to the opposite conclusion in Livshin v. The Clinic Network Canada Inc, 2021 ONSC 6796 and Campbell-Givons v. Humber River Hospital, 2021 ONSC 6317. In those cases, the court held that an employee’s sophistication and retention of independent legal advice did not save a termination provision that did not comply with the Act. Termination clauses ought to clearly comply with the ESA at all times and if they do not, they are unenforceable.
4. Hawkes v. Max Aicher (North America) Limited, 2021 ONSC 4290 (“Hawkes”)
At issue in Hawkes was whether the calculation of the $2.5 million severance pay threshold under the ESA ought to be based on an employer’s payroll in Ontario or take into account payroll outside of the province.
Under section 64(1)(b) of the ESA, an employee is entitled to severance pay if they have been employed for five years and the employer severs the employment relationship while having a payroll of at least $2.5 million. How to calculate that $2.5 million threshold has been subject to legal debate. For years, the prevailing view was that the calculation ought to be restricted to the company’s payroll in Ontario. That changed in 2014 with the case of Paquette v. Quadraspec Inc., 2014 ONSC 2431 (“Paquette”), which found that the calculation ought to include a company’s operations outside of the province.
Earlier this year, the Ontario Labour Relations Board (“OLRB”) in Hawkes departed from Paquette and held that the calculation should be restricted to Ontario. The OLRB explained that, while section 64(1)(b) of the ESA did not expressly state that the calculation of severance pay ought to be based only on payroll “in Ontario”, it was implied because the application of the Act was limited by section 3(1) which contains the words “in Ontario”. (Section 3(1) states that the ESA applies to work performed in Ontario, as well as work performed outside Ontario if it is a continuation of work performed in Ontario). Since the company’s payroll in Ontario did not exceed $2.5 million, the OLRB refused to award the employee statutory severance pay.
The employee appealed the finding to the Divisional Court. The Divisional Court held that the section 64(1)(b) payroll calculation ought to include an employer’s global operations. The OLRB’s reasoning surrounding section 3(1) was considered to be contrary to the rules of statutory interpretation, as it treated the inclusion of the words “in Ontario” in section 3(1) as a deliberate attempt by legislature to limit the Act’s application to Ontario, yet not the exclusion of those same words in section 64(1)(b). Furthermore, the OLRB’s grounds to distinguish itself from Paquette and rely on the pre-Paquette line of cases were indefensible.
This case is now the most authoritative ruling on the question of how to calculate the $2.5 million threshold under section 64(1)(b) of the Act. The decision to include global payroll is important because it means employers with small operations in Ontario but large operations elsewhere may nonetheless be liable for paying statutory severance pay to their Ontario employees.
5. O’Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385 (“O’Reilly”)
O’Reilly clarifies the application and scope of the common employer doctrine. The common employer doctrine treats corporate entities that are related to one another as one employer and in turn jointly and severally liable vis a vis an employee. In the seminal case of Downtown Eatery (1993) Ltd. v. Ontario, [2001] OJ No 1879, the Court of Appeal had set out the test for the common employer doctrine as involving an assessment of whether there existed a “sufficient degree of relationship” between different legal entities. Factors that have been considered by courts to demonstrate that “sufficient degree of relationship” include, but are not limited to, the existence of common ownership between companies as well as whether the entities share employees, premises, and resources.
O’Reilly departed from that test and held that the focus ought to be on the relationship between the corporate entities and the employee, rather than on the relationship between the corporate entities amongst themselves. In other words, the common employer doctrine would apply only if there were evidence of an intention to create an employer/employee relationship between the employee and each related corporation. Shifting the focus of the inquiry to the relationship between the employer and employee is an important development in the law for businesses that operate through multiple entities.
Conclusion
The above are just some of the many important legal developments of the past year. If you would like to know more about how the most recent changes in the law impact you or your business, reach out to a lawyer at Turnpenney Milne LLP today.
Footnotes:
1 See e.g. Ojo v. Crystal Claire Cosmetics Inc., 2021 ONSC 1428.
2 See e.g.Rossman v. Canadian Solar Inc., 2019 ONCA 992, where the Court of Appeal held that an illegal termination clause was unenforceable notwithstanding “savings language”.
3 See e.g. Kroll v. 949486 Ontario Inc. (1997), 34 C.C.E.L. (2d) 78.