The Ontario Court of Appeal re-affirms the principle that employment contracts are to be interpreted objectively.

The Ontario Court of Appeal’s decision Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451 (“Rahman”) re-affirms the general rule that a contract, including an employment contract, must be interpreted objectively without considering the parties’ subjective understanding of its terms.

Rahman involved an employee’s wrongful dismissal claim against her former employer. The employee was terminated without cause and received her minimum entitlement to termination pay under the Employment Standards Act (“ESA”). The employee claimed she was entitled to damages in excess of the ESA minimum amounts. However, the employer relied on a termination without cause provision in the parties’ employment contract which purported to limit the employee’s rights on termination to just her ESA minimum entitlements.

The employee took the position that the termination without cause provision in her employment contract was void and unenforceable because her contract also contained a “just cause” termination provision which violated the ESA. The employee relied on the 2020 Ontario Court of Appeal decision of Waksdale v. Swegon North America Inc. (“Waksdale”) for the proposition that an invalid just cause provision will void an otherwise enforceable without cause termination provision in the same employment contract.

The motion judge rejected the employee’s argument and found in favour of the employer. The judge determined that because the employee was sophisticated, had retained counsel to negotiate her employment contract and intended the employment contract to comply with the ESA, she could not avoid the effect of the termination without cause provision. As a result, the employee’s action was dismissed.

The Ontario Court of Appeal overturned the motion judge’s decision. According to the Court of Appeal, the motion judge had erred by allowing the parties’ “subjective considerations to distort and override the wording of” the termination provisions. The court confirmed the long-established principle that “it is the wording of a termination provision which determines whether it contravenes the ESA”, not the parties’ subjective intentions. With respect to the employment contract at issue, the Court of Appeal determined that the “just cause provision was invalid for violating the ESA. And “the invalidity of the just cause provision rendered the other termination provisions unenforceable.” The employee was therefore entitled to damages exceeding the ESA minimum standards stipulated by her contract.

The Rahman decision re-affirms the principle established by Waksdale that an just cause termination provision which offends the ESA will invalidate other termination provisions in the same contract. Rahman is also notable for applying the well-established principle of contractual interpretation that a person’s subjective intentions are generally irrelevant to the interpretation of a contract (see also Dumbrell v The Regional Group of Companies Inc., 2007 ONCA 59, par. 50).

If you are an employee or employer involved in an employment termination, we welcome you to contact one of the lawyers at James Lawyers to schedule a consultation.