When Ontario Superior Court Justice Sean Dunphy upheld a termination clause in a September 2021 judgment, it provided a rare opportunity for celebration among the province’s employers and management-side counsel, who have grown used to in recent years to a more unforgiving approach on the issue from the bench.
However, the Court of Appeal has now doubled down on its previously strict stance as it overturned the employer-friendly ruling and sided with the plaintiff in the case of Rahman v. Cannon Design Architecture Inc. In this post, I will explore the lessons employers and employees should take from the decision.
Facts of the case
Farah Rahman, the 61-year-old architect at the heart of the case, had spent four years in her position as the most senior employee in CannonDesign’s Canadian office when she was fired without cause in 2016.
In line with the termination clause in her employment agreement, the company paid Rahman four weeks of base salary, but she sued them for wrongful dismissal, claiming the termination clause was unenforceable because it violated Ontario’s Employment Standards Act, 2000 (ESA) in the portion dealing with “just cause” dismissal.
In addition to the U.S.-based parent company Cannon Corporation, Rahman also named its Canadian subsidiaries Cannon Design Architecture Inc. (CDAI) and Cannon Design Ltd. (CDL) as defendants.
No getting around Waksdale
The reason Justice Dunphy’s decision in favour of CannonDesign caused such excitement was that it seemed to depart from the Ontario Court of Appeal’s landmark 2020 ruling in Waksdale v. Swegon North America Inc., which held that all termination provisions in an employment agreement will be void and unenforceable if any single one violates the ESA.
The termination clauses in both Waksdale and Rahman contained the same weakness: “just cause” provisions that violated the ESA by stating that employees can be fired without notice, despite the fact that there are situations when ESA notice may still be owed, even where employers have just cause to dismiss.
Ever since Waksdale, employer-side counsel have been looking for creative ways to distinguish their own cases from it. In Rahman, Justice Dunphy accepted CannonDesign’s argument that their termination provision could be enforced because of the architect’s relative sophistication, the fact that she had sought independent legal advice, and because it was clear that both parties intended to comply with the ESA.
However, the Court of Appeal did not agree: “It is the wording of a termination provision which determines whether it contravenes the ESA,” rather than the parties’ intentions or comparative sophistication, the unanimous panel ruled, confirming that its ruling in Waksdale still applies.
Another notable aspect of the Court of Appeal’s Rahman decision concerned its ruling that all three CannonDesign companies were her common employers, meaning each is jointly and severally liable for any damages payable to her.
While Justice Dunphy concluded that CDAI was Rahman’s only employer because it had offered her the job and paid her throughout the course of her employment, the Court of Appeal found that the lower court judge had erred.
The U.S.-based Cannon Corporation and its Canadian subsidiaries CDAI and CDL were “sufficiently intertwined and exerted sufficient control over Ms. Rahman that they must be considered common employers,” the panel wrote, pointing to several pieces of evidence in support of its conclusion, including:
- The high level of integration among the companies
- The common “CannonDesign” logo shared by all three entities
- Rahman’s direct supervision by the executive director of the U.S.-based Cannon Corporation
- The determination of Rahman’s bonus by the U.S. company.
The Rahman decision signals that the Court of Appeal is sticking to its strict approach to enforcement of termination clauses. In the meantime, employers will need to take a close look at the wording of their own contracts to ensure they comply with the ESA.
When it comes to the issue of common employers, the decision shows that judges will look beyond the employment contract and pay stubs to get at the intention of the parties, peeling back the layers to determine where the effective control of employees is coming from.