Court of Appeal for Ontario

Date: December 17, 2019

Docket: C66458

Panel: MacPherson, Pepall and Lauwers JJ.A.

Between

Noah Rossman Plaintiff (Respondent)

and

Canadian Solar Inc. and Canadian Solar Solutions Inc. Defendants (Appellants)

Counsel:

• Sean G. Foran and Aisling Flarity, for the appellants
• Eytan Rip, for the respondent

Heard: October 24, 2019

On appeal from: The order of Justice Marc R. Labrosse of the Superior Court of Justice, dated December 14, 2018, with reasons reported at 2018 ONSC 7172.

MacPherson J.A.:

A. Introduction

[1] The issue in this appeal is the enforceability of a termination clause in a written contract of employment. On a motion for summary judgment, Labrosse J. held that the termination clause in Noah Rossman's operative employment agreement was void and unenforceable because it was ambiguous and potentially contravened the Employment Standards Act, 2000, S.O. 2000, c. 41 ("ESA"). Accordingly, the motions judge determined that Mr. Rossman was entitled to termination in accordance with common law principles which he fixed at five months. The employer, Canadian Solar Inc. and Canadian Solar Solutions Inc. (collectively, "Canadian Solar"), appeals.

B. Facts

(1) The parties and events

[2] Mr. Rossman began his employment with Canadian Solar in May 2010. The parties entered into an employment agreement on May 6, 2010 (the "2010 Employment Agreement"). Mr. Rossman started as a Regional Sales Manager with a base salary of $67,000 and entitlement to sales commissions.

[3] On August 22, 2012, Canadian Solar sent Mr. Rossman a new employment contract (the "2012 Employment Agreement") that transferred him to a project management role. The new salary was $82,500 with benefits and a potential bonus entitlement up to a maximum of 20 per cent of his base salary. There was no commission component in this second contract.

[4] Prior to signing the 2012 Employment Agreement, Mr. Rossman received advice from a lawyer and discussed the contract with his brother-in-law, who was an in-house counsel at a corporation. Mr. Rossman signed this contract on August 29, 2012.

[5] Both the 2010 Employment Agreement and the 2012 Employment Agreement included the same termination clause (the "Termination Clause"):

9. Termination of Employment

9.01 The parties understand and agree that employment pursuant to this agreement may be terminated in the following manner in the specified circumstances:

(c) by the Employer, after the probation period, in its absolute discretion and for any reason on giving the Employee written notice for a period which is the greater of:

(i) 2 weeks, or

(ii) In accordance with the provisions of the Employment Standards Act (Ontario) or other applicable legislation,

or on paying to the Employee the equivalent termination pay in lieu of such period of notice. The payments contemplated in this paragraph include all entitlement to either notice of pay in lieu of notice and severance pay under the Employment Standards Act Ontario. In the event the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the notice or payments in lieu of notice contemplated under this agreement. The Employee agrees to accept the notice or pay in lieu of notice as set out in this paragraph as full and final settlement of all amounts owing by the Employer on termination, including any payment in lieu of notice of termination, entitlement of the Employee under any applicable statute and any rights which the Employee may have at common law, and the Employee thereby waives any claim to any other payment or benefits from the Employer. Benefits shall cease 4 weeks from the written notice. [Emphasis added.]

[6] Canadian Solar terminated Mr. Rossman without cause on February 12, 2014. Mr. Rossman commenced an action against Canadian Solar, seeking damages for wrongful dismissal and the payment of a significant amount in commissions he claims Canadian Solar owes him.

[7] The parties brought competing motions for summary judgment.

[8] Canadian Solar moved first seeking the dismissal of the action or, in the alternative, judgment against Canadian Solar in favour of Mr. Rossman in the amount of $16,560.

[9] Mr. Rossman brought a cross-motion seeking an order for partial summary judgment on his claim for damages for lost wages based on a reasonable notice period.

(2) The motions judge's decision

[10] Canadian Solar raised three issues before the motions judge – the applicability of the Entire Agreement Clause in the 2012 Employment Agreement, Mr. Rossman's entitlement to commissions, and the enforceability of the Termination Clause in the 2012 Employment Agreement. The third issue was also in play on Mr. Rossman's cross-motion for summary judgment.

[11] The motions judge found that the first two issues raised by Canadian Solar were not properly addressed in a summary judgment motion and were important issues requiring a trial. However, the motions judge granted partial summary judgment for Mr. Rossman on the third issue of the enforcement of the Termination Clause. He found the Termination Clause to be void and unenforceable for the following reasons:

This final sentence ["Benefits shall cease 4 weeks from the written notice"] is clearly either ambiguous as it flies in the face of the rest of the provision or it is an attempt to contract out of the minimum standards under the ESA by limiting benefits to four weeks regardless of the term of employment.

[12] Accordingly, applying common law principles, the motions judge determined that Mr. Rossman was entitled to five months' reasonable notice of his termination.

[13] Canadian Solar appeals from this component of the motions judge's decision. It does not say that this issue can only be determined following a trial. It does say that the decision is wrong in law.

C. Issue

[14] There is a single issue on this appeal: did the motions judge err by holding that the Termination Clause was void and unenforceable?

D. Analysis

[15] In my view, the motions judge did not err. The Termination Clause was void at the outset, which alone suffices to dispose of the appeal. Even if that were not the case, the Termination Clause contains genuine ambiguity, and is therefore void and unenforceable.

(1) Leading 'umbrella' cases in employment law

[16] Before engaging with the substance of the appeal, the fundamental principles underpinning employment law bear repeating. The issue raised in this appeal is an important one. It is of personal significance to Mr. Rossman, and it is of central importance to employees, who need to know with certainty when an employer may terminate their employment: Machtinger v. Hoj Industries Ltd., [1992] 1 S.C.R. 986, at pp. 990-91.

[17] At common law, there is a longstanding presumption that an employer cannot terminate employment without reasonable notice. This presumption is rebutted "if the contract of employment clearly specifies some other period of notice, whether expressly or impliedly": Machtinger, at p. 998. To rebut this presumption, in Ontario, employers and employees are free to contractually agree to any notice period, provided the agreement respects the minimum standards stipulated in the ESA. Explaining this point, Laskin J.A. emphasized that if the contractual notice period runs afoul of the ESA, "then the presumption is not rebutted, and the employee is entitled to reasonable notice of termination": Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, at para. 16. Should that occur, an employee would be entitled to "pay in lieu of notice for the reasonable period under the common law": Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679, at para. 18; Amberber v. IBM Canada Ltd., 2018 ONCA 571, at para. 40.

[18] The ESA specifies the minimum employment standards that employers are obligated to follow: ss. 1(1), 5(1), and 57. Unless a provision provides "a greater benefit to an employee", parties cannot contract out of these employment standards: ESA, s. 5(2); see also Andros, at para. 19. As this court has stressed repeatedly, if a provision within a termination clause conflicts with the minimum standards prescribed by the ESA, it is not open to this court to simply strike out the offending provision. In that situation, the entire termination clause is void. If even one provision contravenes the ESA and fails to "[substitute] a greater benefit", that alone will render the termination clause void and unenforceable: Wood, at para. 21; Andros, at para. 20.

[19] This point is a central consideration in the present appeal because it concerns an employment contract for an indefinite period. On that basis, the Termination Clause must be read together with s. 57(h) of the ESA, which stipulates that employees are entitled to a notice period of eight weeks for employment of eight years or more, to determine its validity and enforceability. I will return to this point in my reasons below.

[20] It is well-established, as Laskin J.A. reiterated in Wood, that "courts interpret employment agreements differently from other commercial agreements": at para. 26. There are significant reasons for this distinction.

[21] First, work is a vital aspect of the human condition. Dickson C.J. captured its fundamental import in Reference re Public Service Employee Relations Act (Alberta), [1987] 1 S.C.R. 313, at p. 368:

Work is one of the most fundamental aspects in a person's life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person's employment is an essential component of his or her sense of identity, self-worth and emotional well-being.

[22] Second, employees are most vulnerable at the moment of termination. As expressed by Iacobucci J. in Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, at para. 95:

The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence, most in need of protection.

[23] This crucial fact led Laskin J.A. in Wood to enunciate several "considerations relevant to the interpretation and enforceability of a termination clause", at para. 28:

• When employment agreements are made, usually employees have less bargaining power than employers. Employees rarely have enough information or leverage to bargain with employers on an equal footing.

• Many employees are likely unfamiliar with the employment standards in the ESA and the obligations the statute imposes on employers. These employees may not seek to challenge unlawful termination clauses.

• The ESA is remedial legislation, intended to protect the interests of employees. Courts should thus favour an interpretation of the ESA that "encourages employers to comply with the minimum requirements of the Act" and "extends its protections to as many employees as possible", over an interpretation that does not do so.

• Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship.

• A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Employees should know at the beginning of their employment what their entitlement will be at the end of their employment.

• Faced with a termination clause that could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee. [Citations omitted.]

[24] Additional principles guide the court in situations of ambiguity. In the present appeal, the parties disagree on whether the Termination Clause is ambiguous. The motions judge found that the last sentence of the Termination Clause was "clearly either ambiguous as it flies in the face of the rest of the provision or it is an attempt to contract out of the minimum standards under the ESA". If the final sentence renders the Termination Clause ambiguous, then the contra proferentem rule requires this court to adopt an interpretation favourable to Mr. Rossman. However, the contra proferentem rule will only apply if there is genuine ambiguity. "Competing interpretations" alone fail to satisfy this threshold: Amberber, at para. 45. Rather, the court must undertake an objective analysis of whether at least two reasonable interpretations exist: Amberber, at para. 45.

(2) The Termination Clause is void and unenforceable

(a) Intention to contract out of the ESA

[25] I agree with the motions judge that the Termination Clause was void at the outset. On its face, the Termination Clause contravened the notice provisions of the ESA. The appropriate focus of this inquiry is the nature of the employment contract at the time of execution. If the Termination Clause "is not onside with notice provisions … of the [ESA] at the outset, then it is void and unenforceable. Potential violation in the future is sufficient" (emphasis added): Garreton v. Complete Innovations Inc., 2016 ONSC 1178, at para. 27.

[26] The impugned provision in the present appeal states, "Benefits shall cease 4 weeks from the written notice" (the "four-week benefits clause"). On its face, this language flies in the face of the ESA.

[27] Canadian Solar submits that the four-week benefits clause provided Mr. Rossman with more generous benefits than those statutorily prescribed if he were terminated in the first three years of his employment. In addition, Canadian Solar acknowledges that a problem would arise if it had terminated Mr. Rossman after four (or more) years of employment. However, Canadian Solar terminated Mr. Rossman just under two years after he signed the 2012 Employment Agreement and even only three years and nine months after he signed the 2010 Employment Agreement. Hence there is no prima facie or possible violation of the notice periods in the ESA.

[28] In my view, it is not open to this court to save the impugned provision of the 2012 Employment Agreement with the benefit of hindsight. As Doherty J.A. stated, the Termination Clause "must be read as a whole and in the context of the circumstances as they existed when the agreement was created" (emphasis added): Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59, at para. 53.

[29] Accordingly, it is irrelevant whether the impugned provision accords with the minimum employment standards in certain circumstances. The employment contract was for an indefinite period. As such, the benefit period needed to run for a minimum of eight weeks to comply with the outermost eight-week minimum statutory notice period: ESA, s. 57(h). It did not. It is therefore void and unenforceable.

(b) The Termination Clause is ambiguous

[30] The Termination Clause is ambiguous, and the ambiguity is not erased by the saving provision.

[31] In making its submission on this point, Canadian Solar relies heavily on Amberber, a case in which this court held that a motion judge erred by finding ambiguity in a termination provision. In reaching this decision, relying on Machtinger, this court said that employment contracts can "referentially incorporate the minimum notice requirements of employment standards legislation, or otherwise take into account later changes to such acts": at Amberber, para. 53.

[32] In Amberber, the saving provision was, at para. 13:

In the event that the applicable provincial employment standard legislation provides you with superior entitlements upon termination of employment ("statutory entitlements") than provided for in this offer of employment, IBM shall provide you with your statutory entitlements in substitution for your rights under this offer of employment.

[33] In the present case, the saving provision is:

In the event the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement, such statutory requirements will replace the notice or payments in lieu of notice contemplated under this agreement.

[34] I agree that these two saving provisions are virtually identical. There is, however, a crucial difference between the termination clauses in the two employment contracts. In the present case, there is this terse and final sentence in the Termination Clause: "Benefits shall cease 4 weeks from the written notice." There is no similar language in the employment contract at issue in Amberber. Accordingly, the 2012 Employment Agreement contains, as the motions judge found, a genuine ambiguity created by the duelling language in the Termination Clause – the initial 'ESA trumps' language versus the concluding 'but nothing above 4 weeks' language.

[35] Unlike the rest of the language in the Termination Clause, the four-week benefits clause is not future facing, nor does it express an intention to conform to the ESA. It cannot be the case that the saving provision here – designed to make the Termination Clause compatible with future changes to the ESA – could reconcile a conclusory provision that is in direct conflict with the ESA from the outset.

[36] In this regard, the motions judge's interpretation of the Termination Clause is entitled to deference: Wood, at para. 17; Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, at para. 54. The motions judge properly instructed himself to interpret the Termination Clause as a whole. He was attentive to the entire Termination Clause and attempted to reconcile the four-week benefits clause with the saving provision. In doing so, he drew an important distinction between language in the Termination Clause that respected the intention of the ESA and terms that indicated an intention to contract out of the ESA's minimum statutory requirements, namely, the four-week benefits clause.

[37] Finally, I observe that this court's recent decision in Andros is directly applicable to the interpretation of the Termination Clause in the present appeal. In Andros, the motion judge found that the termination clause was unclear as to whether the two notice provisions respected the minimum statutory requirements: at para. 8. Fairburn J.A. noted that since the provisions breached the ESA, it was unnecessary for the motion judge to consider whether the termination clause was ambiguous. However, she addressed the question of ambiguity because the parties raised it. In doing so, she determined that the motion judge correctly found that, at best, the clauses were ambiguous because the employee "would not have known with certainty what his entitlements at the end of his employment would be": at para. 31. It is a longstanding principle in employment law that "Employees should know at the beginning of their employment what their entitlement will be at the end of their employment": Wood, at para. 28.

[38] As was the case in Andros, when Mr. Rossman signed the 2012 Employment Agreement, he could not have known with certainty whether the minimum statutory requirements would apply to the four-week benefits period, especially if he were terminated after four (or more) years of employment. Accordingly, the final sentence of the Termination Clause is ambiguous and therefore void and of no effect.

(3) Policy rationale

[39] I make a final observation. Employees need to know the conditions, including entitlements, of their employment with certainty. This is especially so with respect to an employee's termination – a fragile moment of stress and uncertainty.

[40] In this context, saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA's minimum standards. Holding otherwise creates the risk employers will slip sentences, like the four-week benefits clause, into employment contracts in the hope that employees will accept the terms. This outcome exploits vulnerable employees who hold unequal bargaining power in contract negotiations. Moreover, it flouts the purpose of the ESA – to protect employees and to ensure that employers treat them fairly upon termination: Machtinger, at pp. 1002-3.

[41] While employers are entitled to contractually amend the ESA's notice requirements, as long as they respect the minimum standards, they are not entitled to offend them. Employers must have an incentive to comply with the ESA's minimum notice requirements. They cannot be permitted to draft provisions that capitalize on the fact many employees are unaware of their legal rights and will often refrain from challenging notice provisions in court: Machtinger, at p. 1004. Attempting to reconcile the provisions of the Termination Clause with the benefit of hindsight runs counter to the remedial purpose of the ESA.

E. Disposition

[42] I would dismiss the appeal. Mr. Rossman is entitled to his costs of the appeal which I would fix, in accordance with the agreement of counsel, at $12,000, inclusive of disbursements and HST.

Released: December 17, 2019

"J.C. MacPherson J.A."

"I agree. S.E. Pepall J.A."

"I agree. P. Lauwers J.A."