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Key OCA Ruling on the Enforceability of a Termination Clause in an Employment Agreement

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Key OCA Ruling on the Enforceability of a Termination Clause in an Employment Agreement

By:

Posted February 23, 2021

A recent decision by the Ontario Court of Appeal in Waksdale v Swegon North America Inc., 2020 ONCA 391 has put the enforceability of many employment contracts into question. Leave to appeal to the Supreme Court of Canada was refused in January 2021 meaning that the Court of Appeal’s decision stands. The practical implication of this decision is that in the event their employment is terminated, employees may be entitled to claim the more generous common law notice.

Background

The Court of Appeal in Waksdale arrived at the following conclusions which have an impact on the enforceability of a termination clause in an employment agreement:

  1. The termination for cause and termination without cause provisions in a contract must be read together and if one of those provisions is contrary to the Employment Standards Act, 2000 (“ESA”), then all contractual termination provisions are invalid. This is regardless of whether the employee was terminated for or without cause.
  2. The presence of an unenforceable clause renders the entire termination clause void. It is irrelevant whether the employer relied on the illegal provision in an employment contract.
  3. Severability clauses cannot be used to separate different parts of a termination provision in order to allow the valid portion of a contract to stand on its own if the contract also contains an unenforceable clause.

What was wrong with the termination for cause clause?

The offending termination for cause clause in Waksdale contained a laundry list of grounds that the employer considered to amount to just cause. The issue pre-occupying the Court of Appeal was that this clause purported to allow an employer to terminate someone without notice or pay in lieu without first requiring that the offending conduct be ‘willful or intentional’ as required by ESA. A termination for cause clause that purports to relieve an employer of all obligations for notice or severance but that does not contain the “willful” or “intentional” qualifier in the ESA, is likely to be invalid.

Recommendation

We are strongly recommending that employers review their employment contract templates to ensure that this development in the law is captured and to ensure that employment contracts do not otherwise contain passages that unintentionally run afoul of employment standards legislation. Amendments to your employment agreements can be fairly straight forward process; or may not be necessary at all.

This blog post was written by Colleen Hoey, a Partner in the Employment team.  She can be reached at 613-369-0366 or at Colleen.Hoey@mannlawyers.com.

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