Daniel Hassell of ZFL Law was recently quoted in a case comment in Canadian HR Reporter. The article, which discussed the risks of having an overly broad termination clause and establishing a probationary period, is available to read here and below.
‘The whole concept of probationary employment, it’s hard to see how that’s not wrapped up with termination’: lawyer
A termination clause limiting a worker’s termination notice and establishing a probationary period is unenforceable for potentially breaching employment standards legislation, an Ontario court has ruled.
The worker began employment with NYX Capital Corp., a Toronto-based private equity real estate investment firm, in October 2021 with the job titles of “Vice President – Acquisitions and Asset Management and Chief Compliance Officer.”
The worker’s employment agreement had a termination clause stating that the first three months of his employment were probationary, during which NYX could terminate his employment “at any time and for any reason at its discretion, without notice or pay in lieu of notice, or other obligation.” The clause also stated that after he completed three months of employment, NYX could terminate his employment “at any time without cause” by providing him with notice, pay in lieu of notice, benefits continuation and severance pay, plus “any other benefits or entitlements strictly required in accordance with the minimum requirements set out in the ESA [Ontario Employment Standards Act, 2000].”
The termination clause also had a provision allowing the company to dismiss the worker “at any time for cause” without any notice, severance pay, or other obligation. NYX terminated the worker’s employment on Jan. 10, 2022 – one day before the end of the three-month probationary period.
Termination clause unenforceable: worker
The worker sued for wrongful dismissal on the principle that the termination clause – including the probationary employment provision – was unenforceable, so he was entitled to common law reasonable notice. He also argued that, even if he was a probationary employee, NYX hadn’t satisfied the common law test for terminating a probationary employee without notice, as it hadn’t made a good-faith determination about his suitability for permanent employment.
The worker also alleged that his firing was retaliation for an email he sent to the president and CEO on the same day expressing concern that a NYX subsidiary wasn’t in compliance with the law regarding a property it held.
NYX maintained that the worker was a probationary employee by agreement and it had made a good-faith determination of his unsuitability before terminating him during his probationary period. It also provided evidence that senior leadership had met on Jan. 7 and decided to terminate his employment because he hadn’t introduced any new acquisitions and didn’t display the skills they thought he had for the role.
The court found that the termination clause was void and unenforceable as it contravened the ESA. The clause improperly attempted to contract out of statutory entitlements in multiple ways. The first was granting NYX the right to terminate employment “at any time and for any reason” during the probationary period, which was contrary to the principle that an employer doesn’t have an absolute right to dismiss an employee under the ESA, as there are certain circumstances such as firing someone as a reprisal for exercising a right under the ESA – where dismissal isn’t allowed, said the court, adding that the provision that allowed the company to terminate “at any time without cause” had the same problem.
The provision that purported to give NYX the right to terminate the worker “at any time with cause” without providing any notice or severance pay also opened the door to a breach, as the ESA only allows termination without notice or severance pay in the narrowly-defined circumstances of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” Since this provision didn’t define cause, it potentially circumvented the ESA standard, the court said.
Can’t contract out of minimum entitlements
The court also found that the termination clause used language that tried to release NYX from any claims the worker might have arising from his dismissal, with the exception of ESA minimum entitlements. However, it had been established that certain types of termination related claims, such as reprisal, can’t be contracted out of.
The court noted the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, which held that a termination provision according an employer more expansive rights than provided in the ESA renders the entire provision void and unenforceable, regardless of whether the employer complied with the ESA at the time of termination. This made all provisions of the termination clause, including that establishing the probationary period, unenforceable, so the worker wasn’t a probationary employee at the time of dismissal, said the court.
The termination clause here had language that has been frequently held to be
unenforceable by courts, says Daniel Hassell, an employment lawyer at Zubas Flett Liberatore in Toronto.
“One of the problems with it was that it purported to allow the employer to terminate the employment relationship at any time and for overly broad reasons that could include potential scenarios that violate the ESA,” he says. “Any single breach of the ESA renders the entire set of termination provisions unenforceable.”
Sometimes a few simple tweaks can fix such problems, adds Hassell.
“Just removing language such as ‘at any time and for any reason,’ and a few sentences could have been added to confirm that in all circumstances, the employee would be provided with their minimum statutory entitlements, that would have tidied up the clause to the point that it could have been enforceable,” he says. “And if they’re going to say the phrase ‘at any time,’ just insert the word ‘lawful’ so that it’s ‘at any lawful time or for any lawful reason’ – it’s a simple fix in terms of tweaking the language, but a huge impact on the entitlements of the employee upon termination and the effectiveness of the termination clause.”
Worker not a probationary employee
The court also found that there was insufficient evidence to establish that the worker was probationary outside of the void contractual provision. The court declined to make an inference about the parties’ intentions regarding a probationary period from other provisions in the employment contract, noting that if a term was “null and void, then it is null and void for all purposes.” In addition, other provisions only referred to probationary status but not termination during a probationary period, so the worker’s only understanding of his probationary status would be based on the unenforceable provision, the court said in concluding that the worker wasn’t a probationary employee and was entitled to common law reasonable notice.
“[NYX] probably could have had the probationary period clause as a standalone provision that didn’t address what should happen on termination – although with the whole concept of probationary employment, it’s hard to see how that’s not wrapped up with termination,” says Hassell. “In the future, I could see courts determining that any sort of probationary clause itself is inherently a termination clause, so if there are any outside termination clauses, then the probationary clause would also be unenforceable – it ups the ante on the importance of making sure that the entire employment agreement is onside of the technical requirements of employment standards legislation.”
As for the worker’s contention that his termination was retaliatory, the court found no evidence to support his belief that his dismissal was in response to concerns he raised about regulatory compliance. The court accepted NYX’s evidence that the decision to terminate was based on the worker’s performance and suitability for the role, and it had been made days before the email in question. As a result, even if the worker had been a probationary employee, NYX had provided him with a fair and reasonable opportunity to demonstrate his suitability and made a good-faith determination regarding his employment, the court said.
The court considered that the worker held a mid-level managerial position with three months’ service and was 47 at the time of dismissal, determining that a notice period of three months was appropriate.
NYX was ordered to pay wrongful dismissal damages of $44,644.46, including three months’ base salary and benefits. The court declined to award damages for breach of good faith in dismissal or aggravated damages, finding insufficient evidence that the worker suffered any distress beyond what would be normal for a termination of employment.
Review employment agreements
Given this outcome and many similar decisions recently, it drives home how important it is for employers to review employment agreements carefully to assess their enforceability, says Hassell.
“What the employment agreement says on its face may not reflect the outcome of a termination scenario, so carefully drafting employment agreements and making sure they’re up to date, forward-thinking, and implemented properly is really important,” he says.
“It’s also important for employers to document the process that a probationary period employee goes through, just to demonstrate that the new employee was given reasonable opportunity to demonstrate their suitability and the employer made a good-faith determination about the employee’s suitability for the role – recording those steps in the decision making process can be helpful to reduce an employer’s liability.”
See Chan v. NYX Capital Corp., 2025 ONSC 4561.
If you have any questions or inquiries regarding probationary periods, contact Zubas Flett Liberatore Law at 416-593-5844 or questions@employment-lawyers.ca