Even a negotiated employment agreement could be unenforceable

Sunira Chaudhri

Sunira Chaudhri

Toronto Employment Lawyer

Like many executives, Rahman signed an employment agreement when she joined Cannon. That contract contained restrictive clauses including a termination clause that sought to limit her entitlements in the event she was let go.

Farah Rahman was CannonDesign’s (a subsidiary of the Cannon Corporation) most senior Canadian employee.

 

She oversaw it’s Canadian operations and was the company’s Senior Architect, Principal and Office Practice Leader for over four years.

 

She earned $185,000 in salary plus bonus and benefits. She was terminated at the onset of the COVID pandemic in April 2020 at the age of 61.

 

Like many executives, Rahman signed an employment agreement when she joined Cannon. That contract contained restrictive clauses including a termination clause that sought to limit her entitlements in the event she was let go.

 

She used a lawyer to negotiate her contract in 2016. The negotiations were somewhat extensive and meaningful changes were made to her employment agreement by Cannon. Rahman accepted the improvements and signed the revised contract.

 

On her termination, Rahman was paid only four weeks of pay per her employment agreement. She sued for wrongful dismissal damages claiming, in part, the termination provision in her contract was unenforceable and contravened her minimum entitlements under the Employment Standards Act of Ontario (the ESA).

 

Instead, she argued, her termination entitlements shouldn’t be limited by any term in her contract and that the court should determine her damages instead. This was despite the fact that Rahman hired a lawyer and negotiated the terms of her contract when she joined Cannon.

 

In particular, Rahman’s lawyer argued that her termination provision was invalid because the section relating to termination for cause didn’t meet the ESA minimum requirements. The termination for cause section did not provide for the payment of her ESA minimums unless willful misconduct was found.

 

Rahman’s objection was technical and narrow.

 

At a summary judgment motion, Justice Dunphy dismissed Rahman’s motion. The judge found that Ms. Rahman was reasonably sophisticated, had the benefit of legal advice and contract negotiation and that there was not a “marked disparity in bargaining power.”

 

Ultimately, the lower court found it was the mutual intention of the parties to comply with at least the minimum standards of the ESA.

 

Rahman successfully appealed.

 

Writing on behalf of the panel, Justice Gillese found “considerations of Ms. Rahman’s sophistication and access to independent legal advice” were not to be read into the contract.

 

A plain reading of the contract contained a technical breach of the termination provision and it was ousted. Ms. Rahman will receive her common law damages, which, given her age, position and income will likely be much more than the four weeks paid to her on termination.

 

A key takeaway from this case is for executive employees to take a second look at their contracts on termination, even if the contract was closely negotiated. As the law of employment evolves, your entitlements could change and amount to more than you negotiated.

 

Another striking consideration for employers to consider is that employment agreements may become unenforceable within short periods of time. Employers may consider alternate approaches on compensating terminated employees (like offering more than the minimum standards) to avoid the risk many employers face in court when trying to uphold payment of the bare minimum.

 

On to this week’s questions:

 

Q. I was terminated in a remote teams meeting. My employer didn’t discuss bonus or vacation. Will these amounts just legally be paid out to me?

 

A. Not necessarily. If your termination letter is silent to your vacation entitlement or bonus payout, your employer may not be planning to make any payment to you for earned and accrued vacation and/or bonus at all, even if you’re legally entitled to it. Make sure you fully understand what your employer is offering you on termination (and what it isn’t) before signing a release.

 

Q. I am a small employer with less than 10 employees. Do small businesses have to pay more than two weeks on termination if we are terminating an employee that worked for less than two years?

 

A. If you don’t have an employment agreement, your employee may seek damages for the length of time it will take them to find new work. This could be beyond two weeks. Small businesses are not excepted from these obligations in the eyes of the law. All employers, regardless of size, are treated the same by the court (barring unusual circumstances) when wrongful dismissal damages are awarded to an employee.

 

Have a workplace issue? Maybe I can help! Email me at sunira@worklylaw.com and your question may be featured in a future column.

 

The content of this article is general information only and is not legal advice.

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