CASE LAW: TAN V STOSTAC INC.

, 2023 ONSC 2121 (Can LII)

PROFESSOR:

AUTHOR IDENTIFIERS:

BRANCH OF LAW: EMPLOYMENT LAW

LOCAL LAW IN REVIEW: CANADIAN LAW

RELEVANT CASE LAWS: Waksdale v. Swegon North America Inc. 2020 ONCA 391;
Rahman v. Cannon Design Architecture Inc. 2022 ONCA 451 at para. 26-30; Ojo v.
Crystal Claire Cosmetics Inc., 2021 ONSC 1428 at para. 11-18; Sewell v. Provincial
Fruit Co. Ltd 2020 ONSC 4406 at para 19-20; 2022 ONSC 6225 at para. 4-12;
Paquette v. TeraGo Networks Inc 2015 ONSC 4189; Machinter v. HOJ Industries Ltd.,
1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986; Cronk v. Canadian General Insurance
Co. (1995), 1995 CanLII 814 (ON CA), 25 O.R. (3d) 505 (C.A.); Bardal v. Globe & Mail,
supra; Honda Canada Inc. v. Keays, 2008 SCC 39 (CanLII), [2008] 2 S.C.R. 362;
Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701 at
para. 83; Minott v. O’Shanter Development Co.; Minott v. O’Shanter Development Co.
(1999), 1999 CanLII 3686 (ON CA), 42 O.R. (3d) 321 (C.A.) at para. 66; Duynstee v.
Sobeys Inc., 2013 ONSC 2050 at para. 17; Cronk v. Canadian General Insurance
Company, supra, Associate Chief Justice Morden stated at para. 85; Iriotakis v.
Peninsula Employment Services Limited 2021 ONSC 998; Gracias v. Dr. David Walt
Dentistry 2022 ONSC 2967; Henderson v. Slavkin et al 2022 ONSC 2964; Yates v.
Langley Motor Sport Centre Ltd, 2022 BCCA 398 and Osstlander v. Cervus Equipment
Corporation 2023 ABCA 13; Rossman v. Canadian Solar Systems; Campbell-Givons
v. Humber River Hospital;
TABLE OF CONTENTS
BRIEF GUIDE
1.) INTRODUCTION- This report x-rays in on the employment law in Canada, and
its interpretation especially in reference to termination of employment.
The importance of this report is to expatiate on the expansive rights of the
employee against unfair and wrongful dismissal with reasonable notice and due
cause.
It also seeks to redress the imbalance of power between employers and
employees and serve as legal basis for many terminated employees to enforce
their statutory rights.
It enumerates instances whereby termination clauses by employers will be
unenforceable.
Analyses its comparison with Waksdale v. Swegon North America Inc. 2020
ONCA 391.
Analyses Section 2(1)(3) of the Termination and Severance of Employment
regulation under the ESA (O. Reg. 288/01)
Finally, it negates any provision in an employment contract that is not in
accordance with the terms of the Ontario Employment Standards Act, 2000, or
which encourages employers to shirk their contractual obligations as repugnant
to natural justice, fairness and good conscience, and hence voidable.

2. ISSUES TO BE DETERMINED
Should the termination clause in the plaintiff’s employment agreement be
enforced?

What period of reasonable notice is appropriate?

Should the Covid relief benefits payments made to the plaintiff be deducted?

3. FACTS OF THE CASE

The plaintiff began working for the defendant on June 1, 2015. During his
probationary period, he had the position of container controller but he was soon
promoted to depot manager. This was classified as a managerial position and
largely involved supervising a small number of staff on site at the depot where
he worked and overseeing the containers that were stored and serviced there.
The plaintiff’s salary was $67,500 and he was enrolled in the company’s
benefits plan for which the company paid 70% of the cost. He also received a
Christmas gift or bonus every year. The amount of the gift varied between a
low of $500 up to a high of $3500 which he received in his last year of work.

The defendant gave notice of termination to the plaintiff on May 28, 2020,
informing him that he was being laid off effective the following day. The
defendant attributes this decision to adverse economic conditions relating to
either the pandemic or to supply chain difficulties that caused revenue in the
division employing the plaintiff to drop substantially.

The plaintiff was unable to find another job. He kept a log of all of the
comparable positions he applied to which total more than 80. He applied for
and received Canada Emergency Response Benefits (“CERB”).

ONTARIO EMPLOYMENT STANDARDS

General Minimum Wage: $16.55 per hour

Vacation Time and Pay: Employees with less than five years of employment
are entitled to at least two weeks of vacation time after each 12-month
vacation entitlement year. Employees with five or more years of employment
are entitled to at least three weeks of vacation time. Vacation pay must be
at least four per cent of the gross wages (excluding any vacation pay) earned
in the 12-month vacation entitlement year or stub period (where that applies)
for employees with less than five years of employment. Employees with five or
more years of employment at the end of a 12-month vacation entitlement year
or stub period (if any) are entitled to at least six per cent of the gross wages
earned in the 12-month vacation entitlement year or stub period.

Severance Pay: An employee qualifies for severance pay if their employment

is severed and they have worked for the employer for five or more years
(including all the time spent by the employee in employment with the employer,
whether continuous or not and whether active or not) and their employer has a
global payroll of at least $2.5 million; or, severed the employment of 50 or more
employees in a six-month period because all or part of the business
permanently closed.

Amount of severance pay

Multiply the employee's regular wages for a regular work week by the sum of:
The number of completed years of employment;
and
The number of completed months of employment divided by 12 for a year that
is not completed.

An employee must receive severance pay either seven days after the
employee's employment is severed or on what would have been the employee's
next regular pay day, whichever is later.

However, an employer may pay severance pay in installments with the

electronic or written agreement of the employee or the approval of the Director
of Employment Standards, Ministry of Labour, Immigration, Training and Skills
Development. An instalmental plan cannot be for more than three years.
Termination of Employment: Under the ESA, an employer can terminate the
employment of an employee who has been employed continuously for three
months or more if the employer has given the employee proper written notice
of termination and the notice period has expired;
or
an employer can terminate the employment of an employee without written
notice or with less notice than is required if the employer pays termination pay
to the employee.

Period of employment Notice required

Less than 1 year 1 week
1 year but less than 3 years 2 weeks
3 years but less than 4 years 3 weeks
4 years but less than 5 years 4 weeks
5 years but less than 6 years 5 weeks
6 years but less than 7 years 6 weeks
7 years but less than 8 years 7 weeks
8 years or more 8 weeks

During the statutory notice period, an employer must: Not reduce the
employee's wage rate or alter any other term or condition of employment;
Continue to make whatever contributions would be required to maintain the
employee's benefits plans; and Pay the employee the wages they are entitled
to, which cannot be less than the employee's regular wages for a regular work
week each week.
An employee who does not receive the written notice required under the ESA
must be given termination pay in lieu of notice. Termination pay is a lump sum
payment equal to the regular wages for a regular work week that an employee
would otherwise have been entitled to during the written notice period. An
employee earns vacation pay on their termination pay. Employers must also
continue to make whatever contributions would be required to maintain the
benefits the employee would have been entitled to had they continued to be
employed through the notice period.

The notice of termination and termination pay requirements of the ESA do

not apply to an employee who:
Is guilty of willful misconduct, disobedience or willful neglect of duty that is not
trivial and has not been condoned by the employer. Note: "willful" includes when
an employee intended the resulting consequence or acted recklessly if they
knew or should have known the effects their conduct would have. Poor work
conduct that is accidental or unintentional is generally not considered willful;
was hired for a specific length of time or until the completion of a specific task.

However, such an employee will be entitled to notice of termination or

termination pay if:
a.) The employment ends before the term expires or the task is completed; or
The term expires or the task is not completed more than 12 months after the
employment started; or
b.) The employment continues for three months or more after the term expires
or the task is completed;
c.) Is employed in construction. This includes employees who are doing off-site
work in whole or in part who are commonly associated in work or collective
bargaining with employees who work at the construction site;
d.) Builds, alters or repairs certain types of ships
e.) Has their employment terminated when they reach the age of retirement in
accordance with the employer's established practice, but only if the
termination would not contravene the Human Rights Code.
f.) Has refused an offer of reasonable alternative employment with the
employer;
g.) Has refused to exercise their right to another position that is available under
a seniority system.
h.) Is on a temporary lay-off
i.) Does not return to work within a reasonable time after being recalled to work
from a temporary layoff;
j.) Is terminated during or as a result of a strike or lockout at the workplace;
k.) Has lost their employment because the contract of employment is
impossible to perform or has been frustrated by an unexpected or
unforeseen event or circumstance, such as a fire or flood, that makes it
impossible for the employer to keep the employee working. (This does not
include bankruptcy or insolvency or when the contract is frustrated or
impossible to perform as the result of an injury or illness suffered by an
employee.)

ANALYSIS (TAN V STOSTAC INC.,)

1.) TERMINATION CLAUSE:

A termination clause is a paragraph in an employment contract that
establishes both an employer and employee’s rights and obligations at the
time the employee’s contract of employment is terminated. Specifically, it
stipulates the potential severance package for the employee in event of
termination, such as whether they are limited to the receiving only the
minimum amount of notice of termination (or termination pay in lieu of
notice) required by the Ontario Employment Standards Act, 2000.

The termination clause is usually included to limit what the employee can
claim where their employment is terminated without due cause. It serves to
save an employee from significant expenses in form of damages for
wrongful dismissal.

There are however instances whereby the court will find that an employment
contract termination clause is illegal, they include:
a.) Where the termination clause is found to be vague and ambiguous
b.) Where the termination clause seeks to limit the rights of an employee
below the minimum standards required by the Employment Standards
Act.
c.) Where despite a ‘savings clause’ which purports to incorporate the
provisions of the Employment Standards Act, 2000 (the “ESA”) into an
employment agreement, the termination clause is unenforceable for
inconsistency based on the principles articulated in Waksdale v. Swegon
North America Inc. 2020 ONCA 391 (“Waksdale”).

In the extant case, the employee had worked for the company for almost
five years before his employment was terminated as a result of adverse
economic conditions relating the pandemic and/or supply chain difficulties.
The employee brought a wrongful dismissal action by summary trial.

The employee’s employment contract contained the following termination

clause:

‘The Employer may end the employment relationship at any time without
advanced notice and without pay in lieu of such notice for any just cause
recognized at law.
Subsequent to the probationary period, the Employee understands and
agrees that employment may be terminated at any time by the Employer
providing the Employee with two (2) weeks of notice, pay in lieu of notice or
a combination of both, at the Employer’s option, plus one additional week of
notice (or pay in lieu) for each year of completed service to a maximum of
eight (8) weeks. In addition, after completing five (5) years of continuous
employment, severance pay pursuant to the Ontario Employment
Standards Act, 2000 may be payable upon termination of employment in
accordance with the terms of the Ontario Employment Standards Act, 2000.
Upon receipt of the above notice (and severance pay if applicable) the
Employee agrees that no further amounts shall be owing to him/her on
account of the termination of the Employee’s employment under statute or
at common law. The provisions of the Ontario Employment Standards Act,
2000, as they may from time to time be amended, are deemed to be
incorporated herein and shall prevail if greater’.

Justice Dineen held that the termination clause was unenforceable for
inconsistency with the ESA, despite the fact that it contained an ESA saving
provision.
As set out above, the termination clause stated that Stostac could terminate
the employment relationship “at any time without advanced notice and
without pay in lieu of such notice for any just cause recognized at law”.
 Justice Dineen noted that language of this sort is inconsistent with the
standard in Section 2(1)(3) of the Termination and Severance of
Employment regulation under the ESA (O. Reg. 288/01), which provides
that employees who are “guilty of willful misconduct, disobedience or willful
neglectful duty that is not trivial and has not been condoned by the
employer” are not entitled to notice of termination or termination pay.

Following the precedent in Waksdale, the Court found that the invalidity of
the “with cause” portion of the termination clause rendered the entire clause
unenforceable. Stosac’s attempt to incorporate the ESA’s provisions into the
“without cause” portion of the termination clause did not fix the
unenforceability of the clause.
Accordingly, the Plaintiff was entitled to reasonable notice at common law
and was awarded seven months’ pay in lieu of reasonable notice.
Hence, Termination clauses that are unenforceable for inconsistency with
the ESA are unlikely to be “saved” through the inclusion of an ESA saving
provision.
The reasoning behind this is to address the significant power imbalance that
employers have over employees, and the likelihood of having more
knowledge and awareness of legal requirements under the ‘Employment
Standards Act’. Employees should know at the beginning of their
employment what their entitlements should be at the end of their
employment, any termination clause that makes this hazy is void abinitio.
In Wood v Fred Deeley Imports Ltd, 2017 ONCA 158, the court reasoned
that ‘………if employers can always remedy illegal termination clauses by making
payments to employees on termination of employment, then employers will have
no/little incentive to draft legal and enforceable termination clauses at the
beginning of the employment relationship.’

Also see Campbell-Givons v Humber River Hospital; Rossman v Canadian

Solar Solutions; Waksdale v Sweden North America

2.) REASONABLE NOTICE

The governing authorities recognize that fixing a period of reasonable notice
is not a mathematical exercise that can be reduced to a particular formula.
In Paquette v. TeraGo Networks Inc 2015 ONSC 4189, Perrell J. outlined
the relevant considerations as follows:
In determining the length of notice, the court should consider, among other
possible factors: (1) the character of employment; (2) the length of service;
(3) the age of the employee; and (4) the availability of similar employment
having regard to the experience, training, and qualifications of the
employee: Machinter v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992]
 1 S.C.R. 986; Cronk v. Canadian General Insurance Co. (1995), 1995
CanLII 814 (ON CA), 25 O.R. (3d) 505 (C.A.); Bardal v. Globe & Mail, supra.
The factors are not exhaustive, and what is a reasonable notice period will
depend on the circumstances of the particular case…….’
The determination of a reasonable notice period is a principled art and not
a mathematical science. In Minott v. O’Shanter Development Co., supra,
Justice Laskin wrote at para. 62:
‘Determining the period of reasonable notice is an art not a science. In each case
trial judges must weigh and balance a catalogue of relevant factors. No two cases
are identical; and ordinarily, there is no "right" figure for reasonable notice. Instead,
most cases yield a range of reasonableness’.

Economic factors such as a downturn in the economy or in a particular

industry or sector of the economy that indicate that an employee may have
difficulty finding another position may justify a longer notice period: Bullen v.
Proctor & Redfern Ltd., 1996 CanLII 8135 (ON SC), [1996] O.J. No. 340
(Gen. Div.) at paras. 24-29; Thomson v. Bechtel Canada, [1983] O.J. No.
2397 (H.C.J.).
In the extant case, the plaintiff argued that a reasonable notice period would
be between 8-10 months. The defendant suggests that a period of 4-5
months reflecting a month per year of service would be appropriate. The
court taking into consideration the nature of the plaintiff’s position and his
personal circumstances – specifically, i.) being a managerial position, he
needed a longer notice period to find an equivalent job; ii.) being 40 years
old at the time he was laid off and that he made reasonable and
unsuccessful efforts to find another comparable position; iii) the sector of
the economy in which he worked was faced with particularly difficult
economic conditions at the time,-fixed reasonable notice at an amount
modestly higher than the defendant has proposed and granted seven
months.

3.) DEDUCTION OF CERB PAYMENTS

The Canada Emergency Response Benefit (“CERB”) was a form of income
replacement offered by the Government of Canada at the start of the
COVID-19 pandemic. Eligible recipients could receive $2,000.00 per month
during the program’s 28-week duration (which ran from March to September
2020).

While CERB was a welcome source of financial support for many, its
introduction had knock-on effects. One such issue was how CERB
payments would be treated by the courts in the context of wrongful dismissal
claims.
Generally, employers are entitled to seek a dollar-for-dollar offset of new
employment income received during any period where additional severance
is claimed.
The introduction of CERB, however, complicated matters and forced the
courts to deal with the so-called “compensating advantage” problem (i.e.
receipt of a windfall).

As explained by the Supreme Court of Canada:

‘…a potential compensating advantage problem exists if the plaintiff receives a

benefit that would result in compensation of the plaintiff beyond his or her actual
loss and either (a) the plaintiff would not have received the benefit but for the
defendant’s breach, or (b) the benefit is intended to be an indemnity for the sort of
loss resulting from the defendant’s breach. These factors identify a potential
problem with a compensating advantage, but do not decide how it should be
resolved’.

The court in this case followed the reasoning- of the Court of Appeal of
British Columbia and refused to deduct the CERB payments from wrongful
dismissal damage awards -which was largely formed on the grounds of
public policy as such:

‘ …. Overall, the underlying logic of the compensating-advantage problem

addresses a situation in which the individual employee is better off after their
employer’s breach than before. I cannot conclude that this is the result if CERB is
not deducted. CERB was an emergency measure delivering financial aid during
the early weeks and months of an unprecedented global pandemic. The program’s
goal was to mitigate harm to individuals in a moment of great uncertainty. CERB
payments notwithstanding, many people lost their livelihoods as a result of the
pandemic. It strikes me as out of step with that reality to conclude that the
combination of CERB and damages awards leaves individuals “better off” after
their employment was terminated than before.’

IMPORTANCE OF THIS DECISION

The importance of this decision is it expatiates on the expansive rights of

the employee against unfair and wrongful dismissal with reasonable notice
and due cause.
It also seeks to redress the imbalance of power between employers and
employees and serve as legal basis for many terminated employees to
enforce their statutory rights.
It highlights instances whereby termination clauses by employers will be
unenforceable.
It negates any provision in an employment contract that is not in accordance
with the terms of the Ontario Employment Standards Act, 2000, or which
encourages employers to shirk their contractual obligations as repugnant to
natural justice, fairness and good conscience, and hence void.
It seeks to ensure that employees who lose their jobs are adequately
compensated to cater for themselves during the job search period, taking
into consideration the peculiar circumstances of each employee.
It seeks to empower employees in event of wrongful or improper dismissal.

MY OPINION

I am in agreement with the decision of the court based on the facts adduced
as importance of this decision.