Violations of the ESA Must be Visible

It is well established that an employment contract which violates on its face the minimum standard obligations required by the Employment Standards Act (“ESA“) will very likely be ruled to be unenforceable.

This applies to a termination clause that runs afoul of any minimum standard such as notice, severance or even the benefits obligation for the minimum notice period.

If however, the contract is silent on the issue of the ESA mandate, and the contract does not state that its provisions are intended in full satisfaction of the ESA, the severance agreement will likely survive a judicial challenge.

For example, in one case the contract stated that the severance payment would be “not less than one month’s written notice”, a term which appeared to be offside the statute when considering that the employee had been employed for over six years and was therefore entitled to six weeks’ notice. The trial judge’s decision to negate the severance clause was reversed by the Court of Appeal, which reasoned that as there were no words in the agreement specifically negating the ESA, the ESA sums must still be paid. The severance clause was upheld, even though on its face it appeared offensive.

The search hence becomes to seek out words in the contract which directly offend the ESA. A general clause inserted by the company which states words to the effect that “nothing in this agreement modifies or eliminates all statutory rights of the employee” will likely save the contract from a successful challenge.

Additional Damage Claims where Binding Severance Clause

There are certain components of an employment relationship that will always survive any well-crafted agreement, and rightly so. These include protections against human rights violations, the duty of good faith on termination and the Bhasin good faith obligations.

Aggravated Damages

Even if there is a binding severance clause, this will have no impact on a claim for aggravated damages. These damage sums may be claimed where there has been unfair or bad faith conduct at the time of termination. A good example of such awards are cases in which the employer has asserted grounds of termination for serious wrongdoing without having conducted an investigation to establish a realistic foundation for such actions. Awards have been made for aggravated damages such as $200,000[1], $125,000[2], $85,000[3] $75,000[4], $50,000[5], $30,000[6], and $20,000[7] all due to the failure to conduct a proper investigation as a basis for the dismissal. Each case involved allegations of serious misconduct against the employee which were unproven at trial.

Human Rights Claims

Severance clauses will have no impact on a remedy sought by a human rights process. Human rights cases look to define lost income on a conceptually different basis on the theme of “but-for”. Hence “but-for” the unfair termination, the employee would have remained employed in a successful case. The severance clause is no consequence in this context.

Bhasin Duty

The Supreme Court of Canada in Bhasin v Hrynew, although not a case involving the interpretation of an employment issue, nonetheless set out broad parameters of the nature of the duty to be expected between two contracting parties.

The “organizing principle of good faith” was said to be a broad underpinning of the essential duties between the parties to the commercial contract.

This duty in the case, one involving an independent contractor, was stated to be subject to an overall obligation of honesty and good faith, in this instance, not to mislead the other party about the contractual performance.

The damage award in Bhasin was made even in the face of an agreed termination provision.

The Nova Scotia Court of Appeal in the November 2015 decision of Industrial Alliance v Brine also provided an interesting application of Bhasin principles in a case involving the interpretation of the good faith requirement of a disability insurer.

One of the issues in dispute between the parties was the conduct of the insurer in providing rehabilitation services and then reversing its decision. The policy did not mandate the provision of such services, but the company did provide such in view of the young age of the insured and the possibility that he may never work again.

Thirty months after the services had begun, the insurer elected to terminate them, following receipt of its independent medical report. The trial judge was critical of the manner of this decision being made, which was contrary to the view of its medical report.

The issue presented on appeal was then how could the insurer be determined to have acted in bad faith upon terminating a benefit which it was not contractually obliged to provide?

The Court of Appeal referenced the Supreme Court of Canada decision in Bhasin to determine that it was not necessary to find a specific contractual term that had been violated, but rather the court could look to the “independent implied contractual obligations”.

This is clearly a liberal reading of the Bhasin theme. The reluctance of the Court to rely specifically on the contractual term and instead consider the relationship in its broadest concept is reflective of a generous interpretation of the obligations of the contracting parties to one another.

Clearly, the duty of good faith has been firmly established with respect to the manner of termination. A remedial interpretation of employment statutes and contractual issues has been evident for years and hence the Bhasin decision should not be considered a dramatic overhaul of employment law concepts. It may well lead to a duty of good faith throughout the employment relationship.

Employers’ View

It is certainly preferable for companies to establish a contract which moderates severance entitlement. It is not, however, a panacea. Employers must be aware of the ways in which the contract will not apply.

Employees’ Take Away

Individuals will be clearly well advised to take advice when facing a severance term. The words on the page are not to be read and interpreted by a lay person.  

Get Advice, Then Act

Contact the offices of Toronto employment and labour lawyers Mallins Law. We regularly advise employees and employers on legal workplace issues. Contact us online or by phone at 647-792-0310 to schedule a consultation.


[1] Boucher v Walmart above

[2] City of Calgary v CUPE 2013 2013 CanLII 88297 (AB GAA) The damages in this case were described as general damages but are to the same effect.

[3] Tl’azt’en First Nation v Joseph, above

[4] Pate v Galway Ontario Supreme Court, trial level 2009 on first instance

[5] Downham above

[6] Lau v Royal Bank of Canada 2015 BCSC 1639 (CanLII)

[7]Chapell v CPR June 2010 29 Alta LR (5th) 380, 2010 ABQB 441 (CanLII)