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Employers Beware: The Implications of the Waksdale Decision on Termination Clauses

06-Aug-20

By McLennan Ross Labour & Employment Team

A recent decision out of the Ontario Court of Appeal, Waksdale v. Swegon North America Inc., 2020 ONCA 391, casts some doubt on the protections afforded by termination clauses contained in employment contracts.

The Waksdale matter is a wrongful dismissal action commenced by Mr. Waksdale, an 8-month employee of Swegon North America Inc. seeking 6 months’ pay in lieu of termination notice by way of summary judgment. The employer was confident that the without cause termination provision in the employment agreement was enforceable and cross applied for summary dismissal.

Before the trial judge, the employer conceded that the with cause termination clause contained in the agreement was not enforceable, likely under the reasonable presumption that this would not impact the without cause termination provision. Especially since Mr. Waksdale was being terminated without cause and the employment agreement contained a severability clause (which functions to allow the remaining portions of the agreement to continue to operate if a particular clause is found to be void).

The trial judge agreed with the defendant that the with cause termination provision was sufficiently separate from the without cause termination clause and that there was no need to sever any portion of the agreement as the clause at issue was enforceable.

However, the Court of Appeal determined the trial judge erred in its finding and stated:

An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. Recognizing the power imbalance between employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee's common law rights on termination, violated the employee's ESA rights. While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal. In conducting this analysis, 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. Here the motion judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.

A severability clause cannot have any effect on clauses of a contract that have been made void by statute.

It bears noting that with cause termination clauses are more complex in Ontario. Part of this is that just cause terminations also have a statutory “anchor” that needs to be observed. In order to be exempt from receiving severance and notice or pay in lieu of termination under the Ontario Employment Standards Act the employee is required to be “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the temporary help agency or the client.” So while Ontario employers are able to terminate employees for just cause (which may arise from dishonesty, insubordination, continued breaches of company policies etc.) and not pay reasonable notice, they may not be exempt from paying out the statutory minimums under the employment standards legislation if the alleged conduct does not meet the requisite statutory threshold. Accordingly, employment contracts that do not expressly carve out a distinction between termination for just cause and termination for “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” may be void and unenforceable, which in turn may also render the without cause termination clause unenforceable.

Unlike Ontario, Alberta’s Employment Standards Code contemplates that employees terminated for just cause are not entitled to any termination pay or notice thereof. Alberta does not have statutory guidelines on what constitutes just cause for the purposes of the Employment Standards Code. As a result, it is highly unlikely that a just cause termination clause contained in an Alberta employment contract is rendered unenforceable by operation of the Employment Standards Code.

However, the Waksdale decision is a clear indicator that courts ought to interpret employment contracts as a unified “whole”. This naturally raises larger concerns that other potentially illegal provisions may be found to have the effect of affecting the enforceability of other contractual terms.

The Waksdale decision serves as a cautionary reminder that employers should carefully review their employment contracts, ideally with legal counsel, to ensure that all termination provisions comply with applicable laws so not to be left with a disjointed and unenforceable contract.

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