Short Service, Significant Severance
How much notice does an employee deserve when they have only been on the job for a few months? The answer may be much more than you expect.
In Chan v. NYX Capital Corp., 2025 ONSC 4561, Justice Parghi awarded three months of reasonable notice to an employee who had worked for just under three months. The reasoning behind that outcome is worth understanding, both with respect to the enforceability of applicable termination clauses and how courts assess notice for short-service employees.
Background
Reginald Chan was hired by NYX Capital Corp. (a small real estate investment firm) as Vice President of Acquisitions and Asset Management and Chief Compliance Officer at an annual salary of $175,000.00. His employment agreement included a three-month probationary period. On January 10, 2022, one day before that period expired, NYX dismissed Chan without notice or compensation, relying on a clause that permitted a probationary termination “at any time and for any reason at its discretion, without notice or pay in lieu of notice, or other obligation.”
Why the Termination Clause(s) Failed
NYX’s primary defence at trial was that Chan’s employment agreement included enforceable termination provisions that limited his entitlements at the time of dismissal. However, after careful review, the Court voided all termination provisions in Chan’s contract on three grounds:
“At any time” language: both the probation and without-cause dismissal provisions of Chan’s contract permitted dismissal “at any time.” Several Ontario trial-level decisions have previously deemed such phrasing problematic. The Employment Standards Act, 2000 (“ESA”) constrains, for instance, an employer’s right to dismiss a worker who is on a job-protected leave. A clause granting an unfettered right to dismiss at any time may therefore be contrary to the ESA, which Justice Parghi found to be the case here.
Note: the issue of “at any time” language remains hotly contested in Ontario courts, and we addressed the current state of this debate in a prior blog article. “For cause” language: Chan’s contract also permitted termination “for cause” without notice or severance. Under the ESA, an employer may only deny an employee their notice and severance entitlements where they are guilty of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” This is a markedly different (and higher) standard than the common law test for just cause. At common law, conduct that falls short of wilful misconduct may still support dismissal without notice, but not justify stripping an employee of their ESA entitlements. A termination clause that uses the threshold of “cause” as the trigger for denying all notice and severance risks operating in a manner that is broader than the ESA permits. This type of analysis is now well entrenched in Ontario law (and was confirmed by the Court of Appeal in Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451 at paragraphs 24 to 31). The “for cause” provision in Chan’s agreement suffered from exactly such a deficiency, which Justice Parghi held to be fatal.
Release of claims upon receipt of minimum ESA entitlements: this is the most novel ground upon which Justice Parghi struck down Chan’s contractual termination provisions. The without-cause clause stated that receipt of ESA minimum entitlements upon dismissal would constitute “full and final satisfaction of any claim which you might have arising from or relating to the termination of your employment, whether such claim arises under statute, contract, common law or otherwise.” The Court found this to be an improper attempt to contract out of non-waivable rights. Certain termination-related claims cannot be pre-released by private agreement. For example, if an employee is fired in reprisal for attempting to exercise an ESA right, the resulting reprisal claim exists independently of any statutory dismissal entitlements and cannot be bargained away in advance.
There is, however, a wrinkle the Court did not address. The same provision in Chan’s contract included a saving phrase carving out claims that “cannot be released by operation of a statute of Ontario,” language that would appear to address exactly the type of concern identified by Justice Parghi. The Court’s silence on this point leaves its reasoning open to criticism.
That said, in our practice, we now routinely see employers include termination language which, unlike Chan’s contract, fails to provide for any carve-out of claims that cannot be released by operation of statute. Given Justice Parghi’s reasoning in this decision, employment contracts that include such pre-release of claims may well find their termination provisions held to be unenforceable if reviewed by an Ontario court.
Pursuant to the Waksdale principle, any one of the three above-noted deficiencies was sufficient to void all contractual termination provisions. With no enforceable termination clauses, Chan was instead entitled to receive common law reasonable notice of dismissal.
Short Tenure as a Barrier to Re-Employment
Chan sought 12 months’ notice at trial; NYX argued that two months was the appropriate common law period. The Court awarded three. Working through the Bardal factors, the Court characterized Chan’s role as mid-level managerial, citing his two direct reports and that despite his VP title he was not part of NYX’s core leadership team. It also noted Chan’s 47 years of age and over 15 years of industry experience, including a CFA designation and prior work as a VP with another company.
The decisive factor was availability of similar employment. Justice Parghi drew on Grimaldi v. CF+D Custom Fireplace Design Inc., 2023 ONSC 6708, in which a 50-year-old employee with 16 years of experience and five months of service was awarded 5.5 months’ notice, slightly more than the time he had actually worked. The reason: a very short tenure would “require him to explain to prospective employers why he was terminated so soon after being hired,” making the search for comparable work materially harder. Chan’s circumstances were quite similar. Noting that Grimaldi had produced a notice period slightly longer than the plaintiff’s actual length of service, Justice Parghi took “a similar approach” and awarded Chan three months, closely matching his actual tenure.
This result demonstrates that brevity of employment is not simply a factor that limits notice. It can also be a factor that extends it. In effect, the Court treated the notice period as roughly commensurate with time actually worked, because those same months were what made future re-employment so difficult. Chan’s own experience bore this out: he found new work only after five months, well after his Court-ordered notice period had already expired.
Key Takeaways
For employees, the Chan decision is a reminder that: 1) not all termination provisions in an employment agreement will be enforceable once reviewed by a court; and 2) even very short service can support a substantive severance award (particularly where the brevity of tenure itself complicates the job search).
Likewise, for employers, this case is yet another warning that defective termination clauses carry real risk. Any one of the three deficiencies identified by Justice Parghi was enough to sink NYX’s contract, at a cost of nearly $44,000.00. Such damages also underscore that dismissing a short-service employee should not automatically be assumed to be an inexpensive endeavour.
Vey Willetts LLP is an Ottawa-based employment and labour law boutique that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in the National Capital Region and across Ontario. To speak with a lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.