Ontario Court of Appeal decision Rhaman v Cannon Design Architecture: How employment agreements are written can leave employers with costly consequences

On June 8, 2022, the Ontario Court of Appeal (“ONCA”) released its eagerly awaited decision in Rahman V Cannon Design Architecture, 2022 ONCA 451 (“Rahman”). The ONCA overturned the decision of Justice Dunphy at the Ontario Superior Court (“ONSC”), which upheld an otherwise illegal termination provision because the employee sought legal advice prior to signing her employment contract.

The key takeaway for employers is that the best way to protect against costly wrongful dismissal claims is by reviewing and updating your employment agreements, or face the consequences.

Rahman at the Ontario Superior Court

Justice Dunphy’s initial decision gave employers a glimmer of hope following the ground-breaking case Waksdale v Swegon North America Inc. (“Waksdale”), which invalidated many termination provisions in Ontario. In Waksdale, the ONCA concluded that if any of the provisions of the entire termination clause fail to comply with the Employment Standards Act (“ESA”), then all its provisions will fail. Practically, this means that because many “for cause” termination provisions are unenforceable, the entire termination clause is unenforceable, and employers cannot rely on it to limit an employee’s entitlement to common law reasonable.

Rahman gave employers a lifeline following Waksdale because it supported employers’ arguments that termination provisions should be strictly interpreted in favour of employees. At the ONSC, Justice Dunphy rejected the Plaintiff’s argument that the “just cause” termination provision in the employment agreement amounted to contracting out of the ESA, distinguishing it from Waksdale. Justice Dunphy concluded that a strict or adverse construction approach to the termination provisions in Rahman should not be applied because, among other things:

• The employee was reasonably sophisticated and had the benefit of independent legal advice;
• There was no marked inequality of bargaining power; and
• The termination provisions were negotiated.

This decision meant that, even if a termination provision was unenforceable based on the language of the employment agreement, employers could still rely on the surrounding context to argue the termination provision is enforceable.

Rahman at the Ontario Court of Appeal

Unfortunately for employers, the ONCA overturned Justice Dunphy’s decision. The ONCA stated that subjective considerations should not override the plain language of the termination provisions. Ultimately, it is the wording of the termination provision which determines whether it contravenes the ESA, not contextual considerations.

Why this decision matters for your business

Most importantly, this decision reinforces that your best defence against costly wrongful dismissal claims is enforceable termination provisions. As noted above, if your employment agreements are more than a few years old, there is a real risk that Waksdale rendered the termination provisions unenforceable.