Bertsch v. Datastealth: Navigating Termination Clauses and ESA Compliance

Overview

Termination clauses in Ontario employment contracts must comply strictly with the Employment Standards Act, 2000 (“ESA“), which is legislation in Ontario that sets out minimum employment standards. If a termination clause provides less protection than the ESA, then it risks being invalidated by a court, allowing employees to claim greater compensation under common law.

In Bertsch v. Datastealth Inc. (“Bertsch“), the Ontario Superior Court of Justice assessed whether termination provisions limiting an employee’s entitlements to ESA minimums were valid.

Gavin Bertsch worked for Datastealth Inc. (“Datastealth” or the “Company“) for approximately 8.5 months before his dismissal in June 2024. His employment agreement, signed in July 2023, limited his termination entitlements to ESA minimums and specifically excluded any claim to common law notice. Upon his dismissal, Bertsch received four weeks’ pay in lieu of notice, even though the ESA only required one week of notice based on his length of service.

The relevant termination provisions were found in paragraphs 5 and 11 of the employment agreement:

[7] […]

“5. Termination of Employment by the Company: If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the [ESA] and its Regulations,…including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.

You understand and agree that compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment, or pay in lieu thereof. You further understand and agree that this provision shall apply to you throughout your employment with the Company, regardless of its duration or any changes to your position or compensation.”

11.(a) If any of your entitlements under this Agreement are, or could be, less than your minimum entitlements owing under the [ESA]… you shall instead receive your minimum entitlements under the [ESA]…

(h) This Agreement constitutes the complete understanding between you and the Company with respect to your employment, and no statement, representation, warranty or covenant have been made by you or the Company with respect to this Agreement except as expressly set forth herein. The parties have expressly contemplated whether there are any additional implied duties owed by the Company to you, at common law or otherwise, outside the written terms of the Agreement or under statute and confirm that there are no such obligations. This Agreement shall not be altered, modified, amended or terminated unless evidenced in writing by the Company.”

(k)… The invalidity, for any reason, of any term of this Agreement shall not in any manner invalidate or cause the invalidation of any other term thereof…”

Bertsch argued that the termination provisions were ambiguous and violated the ESA by allowing a dismissal for cause without meeting the “wilful misconduct, disobedience, or wilful neglect” standard under the ESA. He claimed that his employment agreement’s termination provisions broadened the grounds for dismissal without notice beyond what the ESA permits, rendering the provisions void. As a result, Bertsch sought 12 months’ pay in lieu of notice, totalling about $300,000. Bertsch’s argument relied heavily on Waksdale v. Swegon North America Inc. (“Waksdale“), where the Ontario Court of Appeal struck down a termination clause for allowing dismissals without notice for reasons that did not meet the “wilful misconduct, disobedience, or wilful neglect” threshold prescribed by the ESA.

The Company argued that the termination provisions were clear and complied with the ESA. So Datastealth brought a motion to strike out the claim, arguing it could be determined as a matter of law without the need for a trial, as there were no disputed facts.

Justice Stevenson ruled in favour of Datastealth, concluding that the termination provisions in Bertsch’s employment agreement were clear, unambiguous, and compliant with the ESA. The court found that there was no reasonable alternative interpretation of the clauses that would result in an illegal outcome, contravening the minimum requirements under the ESA. Justice Stevenson noted that although an inherent power imbalance exists between employers and employees, this factor does not alter the outcome when a contract’s language is clear, specifying the minimum entitlements owed under the ESA.

The court distinguished Bertsch from Waksdale, where termination provisions were found to be unenforceable for allowing dismissals without notice on grounds broader than what the ESA permits. In Bertsch, the termination provisions were carefully aligned with the ESA minimum requirements. The contract explicitly stated that, if Bertsch’s employment were terminated with or without cause, he would receive only the minimum payments and entitlements required by the ESA. The agreement further cautioned that in certain situations, Bertsch would not be entitled to any notice of termination, pay in lieu, severance, or benefit continuation. This specific language demonstrated clear adherence to the ESA’s dismissal for cause standard.

Addressing the failsafe clause in Bertsch’s contract at paragraph 11(a), Justice Stevenson observed that it guaranteed the employee would receive at least ESA minimums if any entitlement in the contract fell short. Though this failsafe clause acted as an additional safeguard, the court found it unnecessary since the termination provisions were already clear and compliant with the ESA.

Takeaways

This decision reinforces that employers must draft termination provisions with precise language to ensure they fully comply with the ESA. In particular, employers must ensure that termination clauses do not attempt to broaden “cause” for dismissal beyond the “wilful misconduct, disobedience, or wilful neglect” standard set out in the ESA. For employees, this case emphasizes the importance of carefully reviewing termination provisions in employment contracts. If a contract includes language limiting their entitlements to ESA minimums, employees should seek legal advice to ensure that the language is compliant with the ESA.