Recent Court decision shifts interpretation of employment contract in favour of employer
In a recent case, a Senior Product Manager was dismissed from his employment shortly before his restricted stock units (“RSUs”)¹ were scheduled to vest (ie when the conditions of the grant of RSUs would be met). Those RSUs had a value of $73,017 USD (approximately $96,934 CAD).
The employee sued his former employer, Wayfair Canada Inc., for wrongful dismissal in which he sought pay in lieu of notice of the termination of his employment of 5 months, including the RSUs.
The case is referred to as Li v Wayfair Canada ULC, 2025 ONSC 2959 (CanLII).
The central question before the Ontario Superior Court of Justice was if the wording of the termination clause in the employment agreement was enforceable. If so, then the employee would be limited to the amount set out on the face of the employment contract. If not, then the court would decide the employee’s entitlements based on what was reasonable in his circumstances.
The employment agreement’s termination clause in question was highly restrictive. On its face, it limited the employee’s entitlements to the bare minimum prescribed by the Employment Standards Act, 2000 (the “Act”). The Act governs minimum employment standards for most employment relationships in the province of Ontario. In the circumstances, based on the plaintiff’s 9 months of employment, the termination clause called for merely 1 week of termination pay, the statutory minimum.
As a result, the employee would be left with only one week to replace a lucrative job, which had a base salary of more than $220,000 CAD.
Justice Dow, the judge deciding the matter, acknowledged that:
- The courts interpret employment contracts differently than other commercial contracts to protect the interests of employees.
- Employees are seen to have less bargaining power than employers.
- Employees are vulnerable when their employment is terminated and in need of protection.
- Consequently, the courts favour the interpretation of an employment contract that gives the greatest benefit to the employee.
In any event, Justice Dow found that the termination clause in question was enforceable.
The decision is surprising, as it is seems to be at odds with a previous decision of the court: Baker v Van Dolder’s Home Team Inc, 2025 ONSC 952 (CanLII).
In Baker, Justice Sproat found that a termination clause purporting to allow the employer to terminate the employment relationship without cause “at any time” was in breach of employment standards legislation. The rationale in Baker was that are certain times when it would be illegal for an employer to dismiss an employee. For example, it is unlawful for an employer to dismiss an employee:
- when an employee is returning to work from a statutory leave of absence, such as a parental leave, or
- when it would be a retaliatory act by the employer because the employee had attempted to assert their rights or had taken other steps protected by employment standards legislation (ie such as making a claim for unpaid wages).
In Li v Wayfair, though, one of the termination provisions included language purporting to allow the employer to terminate the employment relationship without cause “at any time for any reason.”
Justice Dow found that the termination clause in question was also different than an unenforceable termination clause in a case referred to as Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029 (CanLII).
In the Dufault case, a without cause termination provision was deemed unenforceable by the Court because it attempted to give the employer “sole discretion” to terminate the employment relationship without cause “at any time”. Justice Dow found that the termination clause in Dufault also failed to comply with employment standards legislation for other reasons.
It is difficult to reconcile the Court’s finding in Li v Wayfair with those of Baker and Dufault.
Ultimately, Justice Dow found that if the termination provision in Li v Wayfair had been unenforceable, the reasonable notice period would have been four months, based on factors including that the employee was 45 years old, his title included the word “senior”, his salary far exceeded the average Canadian wage earner, and he was employed for less than one year.
In the outcome, the employee lost out on nearly 4 months worth of compensation. Part of that compensation included the employee’s RSUs, which would have vested if the employer had given him 4 months’ notice of the termination of his employment.
Soon after Li v Wayfair was decided, the Court of Appeal for Ontario acknowledged in an interim decision concerning the appeal of Baker that employment contracts commonly purport to allow for termination “at any time”. The question of whether those clauses are enforceable could have broad implications for the enforceability of termination provisions in employment contracts. The appeal of Baker will likely be instructive for employers and employees alike.
Takeaways for Employers:
- Employment contracts should be carefully vetted by an employment lawyer for compliance with technical requirements of employment standards legislation.
- Before terminating any employment relationship, including short-term ones, contact an employment lawyer to discuss what an appropriate separation package may be.
Takeaways for Employees:
- Employees should obtain legal advice before entering into employment agreements to help understand what you are signing and to negotiate better terms.
- In the event that your employment is terminated, seek legal advice from an employment lawyer immediately to understand your rights.
¹For reference, RSUs are stock units granted to an employee as a form of compensation, with certain restrictions or conditions that need to be met before the they are issued to the employee.
RSUs typically ‘vest’ after a certain period of time or upon certain events, such as a change in control of the company.
If you have questions about the interpretation of your employment contract, contact Zubas Flett Liberatore Law LLP for counsel at 416-593-5844 or questions@employment-lawyers.ca.