In 2020, the Ontario Court of Appeal held in Waksdale v Swegon North America Inc., 2020 ONCA 391 that if anywhere in the termination provision of an employment contract fails to abide by the minimum standards set out the Employment Standards Act, 2000 (ESA), the entire termination provision will be invalid. In January 2021, the Supreme Court denied leave to appeal this decision. 

Facts

The plaintiff employee, Mr. Waksdale, sued his former employer Swegon North America Inc., for wrongful dismissal. After working at the defendant corporation for eight months, Mr. Waksdale was terminated without cause. He sued for six-months pay in lieu of reasonable notice. The Ontario Superior Court of Justice dismissed the plaintiff’s action, which was subsequently overruled by the Court of Appeal.

Mr. Waksdale’s employment contract had a “Termination Without Cause” provision and a “Termination for Cause” provision respectively. The “Termination Without Cause” provided that if the employee’s employment is terminated without cause, he shall receive one week notice or pay in lieu of such notice in addition to the minimum notice or pay in lieu of such notice and statutory severance pay as may be required under the ESA. However, the employer conceded that the “Termination for Cause” provision violated ESA, but the exact language of this clause was cited by neither the Court of Appeal nor the Superior Court.

Both parties were in consensus that the “Termination Without Cause” provision was compliant with the ESA while the “Termination for Cause” provision was not and thus unenforceable. Mr. Waksdale took the position that the entire termination clause in his employment contract was void because it was an attempt to contract out of the minimum standards of the ESA.

Decision

The issue to be examined is whether the illegality of the “Termination for Cause” provision rendered the “Termination Without Cause” provision unenforceable. The Court of Appeal started with the principles on interpretation of termination clauses set out in Wood v Fred Deeley Imports Ltd., 2017 ONCA 158, that 1) as the ESA’s legislative intention is to protect employee interest, courts shall interpret it in a manner that encourages employers to comply with its minimum requirements, and 2) termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA.

In light of these principles, the Court held that “[a]n employment agreement must be interpreted as a whole and not on a piecemeal basis”. The termination provisions shall be read as a whole, and if any part violates the ESA, they all become invalid. The Court further elaborated that “it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked”.

Furthermore, the employer attempted to invoke a severability clause in the employment contract which stated that if any part of the contract is found to be invalid, illegal or enforceable, all remaining covenants, terms, conditions and provisions shall be considered severable and shall remain in full force and effect. The Court found this clause inapplicable in the case in question, pointing out that a severability clause cannot have any effect on clauses of a contract that have been made void by statute.

Key Takeways For Employers And Employees

For employers, the impact of this decision is significant. If the termination provisions in the employment contract fail to comply with ESA standards at any point, it may render the entire termination provisions unenforceable, and it cannot be saved by a severability clause. Therefore, it is advisable to review the employment contracts with a lawyer to see if there are valid and legally enforceable termination provisions in place, which can limit their employees’ termination and severance pay to the Employment Standards Act minimums.

For employees, this case provides more clarity in terms of ascertaining their rights upon wrongful termination and challenging termination provisions in employment contracts. It will be helpful for an employee to consult a lawyer to examine whether the employment contract is valid and enforceable and discover what their lawful entitlements will be upon termination.

If you are experiencing any issues in connection to the termination provisions in your employment contract, Top Toronto employment lawyer, Stacey ball can help you determine your legal options. Please call us at 416-921-7997, extension 227.