Will Your Termination Clause Stand Up in Court?

Supreme Court of Canada Denies Leave to Appeal in Waksdale Decision

On January 14, 2021, the Supreme Court of Canada denied an application for leave to appeal an Ontario Court of Appeal decision that dealt with the enforceability of the termination clauses within an employment agreement. In Waksdale v Swegon North America Inc., 2020 ONCA 391 (Waksdale), the Ontario Court of Appeal held that the termination clauses in an employment agreement must be read as a whole, and if any portion contravenes the Ontario Employment Standards Act (ESA), the entire termination clause in the contract will be unenforceable.

This decision changes how termination clauses will be interpreted in Ontario, and it has the potential to affect employment contracts nationwide.

Decision History

Waksdale sued his employer for wrongful dismissal after his employment was terminated without cause. To effect the termination, the employer complied with the termination “without cause” provision in the employment agreement and provided Waksdale with pay in lieu of notice upon termination. On summary judgment, the motion judge dismissed Waksdale’s claim. Although the employer conceded that the “for cause” provision breached the ESA, the motion judge held that the “without cause” provision was still valid and enforceable.

On appeal, the employee took the position that, because the “for cause” clause contravened the ESA, all other termination clauses in the employment agreement were void and unenforceable. The employer argued that two clauses in the employment agreement were discrete, stand-alone clauses that applied to different situations, and the invalidity of the “for cause” provision should not impact the enforceability of the “without cause” provision. As an alternative argument, the employer said that the severability clause of the agreement applied to sever the unenforceable clause from the rest of the contract.

The Court of Appeal rejected the employer’s argument and overturned the motion judge’s decision, holding that “[t]he correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA.”

In other words, the illegal “for cause” provision also rendered the termination “without cause” provision unenforceable.

The Court also held that the severability clause did not apply, as severability clauses do not have any effect on clauses made void by statute.

Legal Implications

For Ontario Employers

This decision has important implications for how termination provisions will be interpreted in Ontario-based employment agreements. In Ontario, the ESA requires a standard of “wilful misconduct” for just cause. There has been debate in Ontario jurisprudence about whether the “wilful misconduct” standard contained in Ontario employment legislation imposes a higher standard than what is required to prove just cause under the common law.

The implication for Ontario employers is that a “for cause” provision which imposes a standard other than “wilful misconduct” may violate the ESA. Based on the decision in Waksdale, this would then mean that employers cannot rely on any of the otherwise enforceable termination provisions in their employment agreements. Ontario employers should ensure that the “for cause” provisions in their employment agreements do not run afoul of the ESA.

For Employers Elsewhere in Canada

Unlike Ontario, employment standards legislation in British Columbia, Alberta, Saskatchewan and Manitoba state that employees may be dismissed without notice where the employer has “just cause” to do so. Since “just cause” is not defined, it would be determined according to common law principles.

In these provinces, it is less likely that a clear and unambiguous “for cause” termination provision will violate employment standards legislation. However, as a result of the Waksdale decision, employers across Canada should still be mindful that a well-drafted “without cause” provision may not be enforceable where other provisions in the employment agreement violate employment standards legislation.

Key Takeaway

The Waksdale decision stands as a clear reminder that courts will interpret employment agreements as a whole. A valid “without cause” termination provision may not be enforceable if there are other clauses in an employment agreement that run afoul provincial employment standards, even if the employment agreement also includes a severability clause.

The consequences of an unenforceable termination provision can be costly. Employers should review their employment agreements in their entirety and ensure they align with provincial employment standards requirements. In the absence of a valid termination clause in the employment agreement, common law principles will govern an employee’s termination. Generally speaking, the common law requirements for reasonable notice or pay in lieu greatly exceed the notice requirements provided for in employment legislation.

We recommend that employers seek legal assistance when reviewing their agreements, particularly if they are unsure about whether their contracts comply with the legislation. MLT Aikins has a leading team of employment lawyers throughout Western Canada and would be pleased to assist.

This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.