Court File and Parties
COURT FILE NO.: CV-16-605-00SR DATE: 2018 October 19 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Stephen Deak, Plaintiff AND: GreenMantra Recycling Technologies Ltd., Defendant
BEFORE: The Honourable R. J. Harper
COUNSEL: D. Sinko, Counsel, for the Plaintiff J. Masterman, Counsel, for the Defendant
HEARD: June 14, 2018
Endorsement
Issues
[1] Is the overtime averaging agreement entered into by the parties invalid pursuant to the Employment Standards Act, section 22?
[2] If it is invalid what is the impact on the calculation of overtime?
[3] Does the termination clause in an Employment Agreement comply with the Employment Standards Act? (ESA)
[4] If it does not comply is the clause void and unenforceable?
Background
[5] The Plaintiff, Stephen Deak (the Employee) was an Employee of the Defendant, GreenMantra Recycling Technologies Ltd. (the Company).
[6] The Employee and the Company entered into an employment agreement on February 2, 2015, to be effective February 23, 2015. The agreement provided that it was to continue in effect for an indefinite period: “unless terminated earlier in accordance with Section 3”.
[7] Section 3 of the agreement provided that the Employee’s employment may be terminated by the company at any time for cause or without cause in accordance with this section. The section further provided that if the termination was for cause, the termination was effected by written notice to the employee.
[8] Section 4 (b) of the agreement provides that if the employee is terminated for other than cause or incapacity or during the probation period provided in the contract, the Company shall provide to the Employee:
(i) written working notice of termination to the employee, in the amount of two (2) weeks’ notice per completed year of service with a minimum of two (2) weeks’ notice and a maximum of fourteen (14) weeks’ notice (“the Notice Period”), or at the option of the Company by providing the Employee with pay in lieu of notice (Pay in Lieu”) or any combination of working notice and pay in lieu, the Employer’s sole discretion.
[9] Due to downsizing the Company terminated the Employee.
The Issue of Overtime Averaging
[10] The Employee takes the position that the averaging agreement he entered into with the Company on June 30, 2015 is invalid as it does not comply with the ESA.
[11] Section 22(1) of the ESA provides that an employer must pay overtime pay for each hour worked in excess of 44 hours in each week unless another threshold is prescribed. As the employee does not fall within any of the prescribed thresholds, the 44 hour threshold presumptively applies.
[12] Section 22(2) of the ESA provides that an employer and an employee may enter into an agreement to average the employee’s hours of work for the purpose of determining the employee’s entitlement to overtime pay. Section 22(2) also sets out certain mandatory requirements that include the necessity of the employer obtaining the approval of the Director of the Ministry of Labour permitting the employer to enter into overtime averaging agreements with its employees.
[13] The Company obtained the approval of the Director. That approval came into effect on April 29, 2015. That approval allowed an agreement to be entered into. It did not approve any particular agreement.
[14] The Employee entered into an Overtime Agreement with the Company on June 30, 2015.
[15] Section 22(3) of the ESA provides an averaging agreement is not valid unless it provides for an expiry date. In addition, if an employee is not a member of a trade union, the expiry date shall not exceed two years from the taking of effect of the agreement.
[16] The subject Overtime Agreement does not provide for an expiry date.
[17] The Company submits that the Ministry of Labour’s approval sets out an expiry date for the approval and that is made clear in the Information for Employees that was attached to and became a part of the Overtime Agreement. I disagree with this submission.
[18] The expiry date in the approval only related to the time frame in which an Overtime Agreement could be entered into. It had nothing to do with setting an expiry date of the Overtime Agreement.
[19] Section 22(3) is clear. If there is no expiry date in the agreement, the agreement is not valid.
[20] I find that that Overtime Agreement is not valid. The Employee is entitled to overtime pay for each hour worked in excess of 44 hours per week.
The Termination Provision
[21] The Employee was employed by the Company pursuant to a contract of employment. (Employment Contract).
[22] The Employee was a process operator. He operated production lines. He had been employed pursuant to the Employment Contract for less than a 5 year period when the Company terminated the employment of the Employee.
[23] On August 23, 2016, the Company made a decision to terminate the Employee. The Company gave the Employee two (2) weeks’ salary in lieu of notice of dismissal in accordance with the Employment Contract.
[24] Throughout the employment period of the Employee, the Company had less than 50 employees and a payroll that was less than $2.5 million. As a result, the severance provisions of the ESA does not apply to this employee and this employment circumstance. (ESA Section 64(1)(a)(b))
The Termination Clause
[25] The termination clause in the subject agreement provides that written working notice of termination to the employee shall be two (2) weeks per completed year of service with a minimum of two (2) weeks’ notice and a maximum of fourteen (14) weeks’ notice, or at the option of the Company by providing the Employee with pay in lieu of such notice or any combination of working notice and pay in lieu, at the Employer’s sole discretion. The clause also provided that the calculation of the pay in lieu of notice, the calculation shall be based exclusively on the Employee’s base salary. Pursuant to clause 4 (b)(ii):
There shall be no other forms of remuneration, including without limitation, any bonus payments or stock options to which the Employee might otherwise be entitled shall be considered in calculating Pay in Lieu, nor shall they be paid to the Employee in respect of Notice Period.
[26] In Oudin v. Centre Francophone de Toronto, Inc., 2016 ONCA 514, Para. 8, the Ontario Court of Appeal upheld a motions judge’s decision that a clause which did not refer to severance was not an attempt to contract out of the ESA and that the parties had agreed that the ESA would be respected. A clause in an employment agreement which limits notice, but is silent of other entitlements is on its face legal and enforceable.
[27] I agree with the submissions of the Company. The termination clause only refers to a notice of termination; that is all it seeks to limit. It does not refer to, deal with, or attempt to avoid any other requirement under the ESA. Where a termination clause is silent on benefits and/or severance pay, it is not automatically invalid nor does it waive or contract out of any right to or obligation under the ESA. As referred to above, the requirements in the ESA for entitlement to severance are not present in the circumstances of this case. Any consideration of severance must come under the consideration of a hypothetical situation whereby the requirements set out in s.64(1)(a)(b) would be met.
[28] In Oudin, the Superior Court decision that was affirmed by the Court of Appeal. The court commented on the consideration of hypothetical situations that might exist and therefore cause a termination clause to violate the ESA. In Oudin, the court stated at para. 50:
[50] The plaintiff appeared to advocate for the view that if any potential interpretation can be posited that might in some hypothetical circumstance entail a potential violation of the ESA, however absurd or implausible the interpretation may be, then the only possible result is to strike out the entire section of the agreement. That is not the law.
[29] Section 57(d) of the ESA provides that the notice period required for termination shall be (d) at least four weeks before the termination, if the employee’s period of employment is four years or more and fewer than five years. That is the notice period that applies to the facts of this case.
Waiver, etc., to be null and void
[31] In the recent case of Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 2017 CarswellOnt 2408, the court dealt with a termination clause of an employee that had been employed with the company for eight (8) years and four (4) months prior to being terminated. In that case there was an employment agreement that had a termination clause that called for two weeks’ notice or pay in lieu of notice.
[32] The motions judge found the termination clause enforceable. The Court of Appeal found that the termination clause to be unenforceable.
[33] In Wood, the court considered whether the termination clause contravened the ESA because it excluded the employee’s statutory obligation to make benefit contributions during the notice period and because it did not satisfy the employee’s statutory obligation to pay severance pay?
[34] This case is distinguishable from Wood in that the Employee was employed only for a period of less than 5 years and was not entitled to severance pay as set out in ESA s.64(1)(a)(b).
[35] Commencing at para. 15 of Wood that court stated:
[15] At common law. An employee hired for an indefinite period can be dismissed without cause, but only if the employer gives reasonable notice. In Machtinger v. HOJ Industries, [1992] 1 S.C.R. 986 (S.C.C.) at p. 998, the Supreme Court characterized the common law principle of employment on reasonable notice “as a presumption, rebuttable if the contract of employment clearly specifies some other period of notice”.
[16] Ontario employers and employees can rebut the presumption of reasonable notice by agreeing to a different notice period. But their agreement will be enforceable only if it complies with the minimum employment standards in the ESA. If it does not do so, then the presumption is not rebutted, and the employee is entitled to reasonable notice of termination.
[36] Laskin J.A. in Wood, discussed the court’s interpretation of employment agreements commencing at para. 26.:
[26] In general, courts interpret employment agreements differently from other commercial agreements. They do so mainly because of the importance of employment in a person’s life. As Dickson C.J.C. said in an oft-quoted passage from his judgment in Reference re Public Service Employee Relations Act (Alberta), [1987] 1 S.C.R. 313 (S.C.C.) 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.
[27] As important as employment itself is the way a person’s employment is terminated. It is on termination of employment that a person is most vulnerable and this is most in need of protection: see Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701 (S.C.C.)
[28] The importance of employment and the vulnerability of employees when their employment is terminated give rise to a number of considerations relevant to the interpretation and enforceability of a termination clause:
- 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: Machtinger. P. 1003
- 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: Machtinger. P. 1003
[37] In this case, the termination clause provides for a notice period that is less than the notice period prescribed by the ESA. Under these circumstances, it is not enforceable and the notice period set out in the ESA apply.
[38] I find that, on the evidence before me, the termination clause as in the agreement is not valid.
[39] There shall be an order in accordance with the relief requested in the Plaintiff’s Notice of Motion.
[40] If costs are not agreed to within 30 days, counsel may make arrangements through the trial coordinator to schedule a time to make submissions as to costs.
The Honourable R. J. Harper Date: October 19, 2018