In today’s rapidly evolving workplace, employment contracts that haven’t been reviewed in years are more than just outdated—they’re a liability. As employers navigate shifting legal standards and workplace norms, clauses that once seemed boilerplate may now expose employers to significant risk. In this post, we’ll explore why it’s crucial to revisit your employment agreements regularly, particularly in light of recent legal developments.
Termination Clauses: A Growing Source of Litigation
Termination clauses have come under increasing judicial scrutiny. A wave of recent employment law decisions has rendered many previously common clauses unenforceable.
For example, last year in Dufault v. Ignace (Township), the Ontario Court of Appeal upheld a decision of the lower court which held that a termination provisions in an employment agreement was deemed unenforceable because, among other reasons, it permitted the employer to terminate the employee’s employment without cause in the employer’s “sole discretion” and “at any time”, which was found to violate the Employment Standards Act, 2000 (“ESA”).
More recently, in De Castro v. Arista Homes Limited, the Ontario Court of Appeal again upheld the lower court’s decision in finding that the “for cause” termination clause in an employment agreement violated the ESA. In this case, the court found that the wording in the agreement was ambiguous enough to render it unenforceable. In addition, the court notes the employer’s intention is irrelevant: it is not whether the employer intended for the contract to comply with the law; it is whether, in fact, the contract actually does comply with the law.
If a termination provision is found to be unenforceable, a court would find that a terminated employee is entitled to common law reasonable notice, which a number of cases have recently found can exceed 24 months in exceptional circumstances – drastically increasing an employer’s liability upon termination of an employee.
Remote Work Agreements: The Need for Clear Arrangements
The COVID-19 pandemic ushered in widespread remote work, and many of those arrangements are still evolving. However, employers that attempt to revert to pre-pandemic work models without a clear agreement and right to recall in place may find themselves facing claims of constructive dismissal.
Such was the case in the recent decision of Byrd v. Welcome Home Children’s Residence Inc. Here, the employee, Byrd, had no written employment agreement in place. In May of 2020, her employer allowed her to work remotely from Europe without a formal remote work agreement in place. Over a year later, her employer recalled her to in-person work. Byrd refused to return in person and claimed that she had been constructively dismissed, amongst other reasons. The Court held that Byrd was constructively dismissed and entitled to common law notice. The Court reasoned that remote work had become an accepted part of the employee’s job and the right to recall the employee back to in-person work was never established nor communicated. This meant that the employer’s requirement that she return to Canada amounted to a repudiation of the employment contract.
This case is a clear warning: changes in working arrangements must be clear, documented and formalized to protect both parties.
Bottom Line
Employment law is constantly evolving, and outdated agreements can expose employers to serious legal and financial risks. Recent decisions from Ontario courts underscore how easily a poorly drafted or antiquated employment contract can be deemed unenforceable.
To mitigate risk and protect your organization, review your employment contracts regularly: what was enforceable five years ago may not pass legal scrutiny today.
Updating your employment agreements isn’t just about compliance—it’s about proactively managing risk in a changing legal and workplace landscape. A small investment in review today could prevent significant liability tomorrow.
Written By: Samantha Sutherland