The Court of Appeal has recently issued a decision reaffirming its previous decision in Wacksdale v. Swegon North America Inc., 2020 ONCA 391. In that case, the Court of Appeal made a landmark decision that “for-cause” termination provisions that violate the Employment Standards Act are illegal, and that breach of the Employment Standards Act in one termination provision means all other termination provisions are likewise invalid.
Why the “For Cause” Termination Provision Was Deemed an Unenforceable Termination Clause
In the present case, the Court of Appeal was asked to review the lower court’s decision on the validity of both the “without cause” and for cause” termination provisions. At the outset, the Court of Appeal indicated that the “for cause” termination provision is illegal. This provision stated that the employer could terminate the employee’s employment without notice or pay for “cause”, while defining “cause” in a very broad manner beyond the exceptions in the Employment Standards Act. Consequently, the clause was found illegal. As the Court explained, because the Employment Standards Act is remedial legislation, courts should favour interpretations of the act which encourage employers to comply with the act. Failure to do so may result in making the act ineffectual. As the Court noted, “if the only consequence for an employer of drafting a termination clause that does not comply with ESA minimums is an order that they comply, employers will have little incentive to draft a lawful termination clause”. Another element that the Court indicated regarding unenforceable termination clauses is that compliance with the ESA at termination does not fix a termination clause that was unenforceable from the beginning of the employment relationship.
The Court reminded that failure to comply with the high standard of misconduct outlined in the ESA in drafting a termination clause can lead to such a clause being unenforceable. In this case, that is precisely what occurred. The “for cause” termination provision purported to terminate the employee for cause without payment as long as the employee engaged in a much lower standard of misconduct than that outlined in the ESA. Consequently, the clause was found to be unenforceable. Beyond the mere fact that the cause stipulated was of a lower standard, the clause itself was also an “inclusive” clause. The clause also used the phrase that cause “shall include but is not limited to the following”, a phrase which the Court held permitted the employer to expand and deem as “cause” things that were not listed in the contract, making the definition of “cause” even more expansive beyond the narrow and high standard as outlined in the ESA.
Impact of an Unenforceable Termination Clause on Employment Contracts
Beyond the cause provision, the Court was also asked to review the lower court’s decision on the without cause provision. The Court of Appeal refused to make a ruling on this provision, determining that because the “for cause” provision violates the Employment Standards Act, the entire set of termination provisions are entirely invalid. The Court of Appeal determined that it would be best to leave the question of the without cause provision for a case whereby determination of that question would directly affect the outcome of the case.