Executive Summary: Key Legal and Evidentiary Issues

• Fixed-term employment agreement for a five-year CFO role was terminated without cause only months into the term, raising wrongful termination and contract enforcement issues.
• Termination provisions (with cause and without cause) in the employment agreement were found to contravene the Employment Standards Act, 2000, rendering all termination clauses unenforceable.
• The court relied on deemed admissions from the defendants’ default and supporting affidavits to establish both liability and the quantum of unpaid wages and unreimbursed expenses.
• Individual directors or principals were held jointly and severally liable with the corporate employers, based on the pleaded and affidavit evidence.
• The Howard v. Benson Group Inc. line of authority was applied to award the balance of fixed-term wages to the end of the five-year contract after invalidating the termination provisions.
• The defendants’ complete non-participation led to default judgment, with the plaintiff recovering salary, expenses, and motion costs in a single uncontested proceeding.

Facts of the case

The case arises from the early termination of Nikhil Chhelavda, who had been hired as Chief Financial Officer by a group of related corporate entities controlled by the Huszti defendants. He began his employment with the corporate defendants on July 11, 2017, under a fixed-term employment agreement with a five-year duration. The agreement provided for a base salary of $175,000 per year and for reimbursement of business expenses incurred in the performance of his role. Despite this long fixed term, his employment was terminated without cause on November 22, 2017, only a few months after he started. Following his termination, the defendants did not pay all of his wages up to the termination date and did not reimburse all of his business expenses, leaving him with significant alleged unpaid amounts.

The plaintiff commenced an action against the corporate employers and certain individuals associated with them, including Leslie and Veronica Huszti and various related corporate entities. The claim sought, among other things, unpaid wages up to the termination date, wages for the balance of the five-year fixed-term contract, unreimbursed business expenses, and costs. The defendants, though properly served, failed to defend the action. They were noted in default and remained entirely incommunicado despite being served with all motion materials and with information on how to attend the motion by Zoom. The court allowed a 15-minute grace period at the outset of the hearing; when none of the defendants appeared, the judge proceeded in their absence and considered the motion for default judgment based on the pleadings and affidavit evidence.

Termination provisions and policy terms

A significant legal issue in the motion concerned the validity of the termination provisions in the written employment agreement. The contract contained both a without-cause termination clause and a with-cause termination clause. On review, the court found that both the without-cause termination provision and the with-cause termination provision violated the requirements of the Employment Standards Act, 2000 (ESA). Because these clauses failed to comply with ESA minimum standards, the judge held that neither clause was valid or enforceable at law.

Beyond invalidating the specific clauses, the court applied the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America. Under that authority, where any termination provision in an employment agreement (whether for cause or without cause) breaches the ESA, the effect is to render all termination provisions in the agreement unenforceable, not just the defective ones. The judge expressly noted that the termination provisions in the employment agreement were unenforceable as a whole in light of Waksdale, and added that he would have reached the same conclusion even if only one of the two provisions (with-cause or without-cause) had been contrary to the ESA. As a result, the plaintiff was not restricted by the contract’s termination language and instead could claim the full balance of his fixed-term wages.

Liability findings

On liability, the court relied on two main evidentiary pillars: the deemed admissions arising from the defendants’ default and the affidavit evidence filed by the plaintiff. When a defendant is noted in default, the factual allegations in the statement of claim, to the extent they are properly pleaded, are deemed admitted. In this case, those deemed admissions, together with the sworn affidavit material, were found sufficient to establish both liability for wrongful termination and the ancillary claims for unpaid wages and unreimbursed expenses.

The court also addressed the position of the individual defendants. Based on the pleaded facts and the contents of the supporting affidavits, the judge concluded that the individual defendants should share responsibility for the plaintiff’s losses. He held that the individual defendants were jointly and severally liable with the corporate defendants for the damages awarded. This meant that each corporate and individual defendant could be pursued for the full amount of the judgment, providing the plaintiff with greater security of recovery in light of the defendants’ non-participation and apparent unwillingness to engage in the litigation.

Damages and monetary relief

Once liability was established through the default and the evidence, the court turned to quantifying damages. The plaintiff did not pursue the general damages claim that had been pleaded in the statement of claim; instead, he confined his request to specific monetary amounts grounded in the contract and supporting evidence. He sought unpaid wages up to his termination date in the amount of $49,246.53, the balance of the wages that would have been payable to the end of the five-year fixed-term agreement in the amount of $810,753.38, and unreimbursed business expenses of $53,981.09. The judge accepted that the unpaid wages and unreimbursed expenses were owing under the express terms of the employment agreement. For the balance of the wages over the remaining term of the contract, the court relied on the principles from Howard v. Benson Group Inc., where the Ontario Court of Appeal held that, once a fixed-term employee is terminated without valid contractual limitations, the employee is generally entitled to the salary and benefits for the unexpired portion of the term.

All of these amounts were detailed and explained in the plaintiff’s supporting affidavit material, which the court found sufficient and unchallenged. The judge awarded each amount in full as requested: $49,246.53 for unpaid wages to the date of termination, $810,753.38 for the balance of fixed-term wages, and $53,981.09 for unreimbursed business expenses. In addition, the court awarded the plaintiff his costs of the motion in the amount of $5,000. In total, the successful party, Nikhil Chhelavda, obtained judgment for $918,981.00 combining wages, expenses, and costs against the corporate and individual defendants, who were held jointly and severally liable for this full monetary award.