Employers may wish to revisit their employment contracts after the latest case coming out of the Court of Appeal for Ontario.
Typically employment contracts have two parts of the termination provision: one “for cause” and a second “without cause”.
Waksdale v. Swegon North America Inc.
In Waksdale v. Swegon North America Inc., 2020 ONCA 391 the Court of Appeal was faced with a termination for cause clause which both sides agreed violated the Employment Standards Act (“ESA”).
The employee, Plaintiff, was terminated “without cause”. Regardless, the employee argued that since the “for cause” termination provision violated the ESA, the employee was entitled to pay in lieu of notice in accordance with the common law, as opposed to the minimums imposed by the ESA.
It is well established law that if any portion of the termination without cause provision violates the ESA, the entire termination provision is void and therefore the employee is entitled to common law notice.
As a result, the Court of Appeal found that while there are two parts to a typical termination clause, if either part violates the ESA, even if that part is not being relied upon in the case, the entire termination clause is void.
The reasoning behind the ruling is summarized rather well in a previous Court of Appeal decision, Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 481:
- The ESA is remedial legislation, intended to protect the interests of employees. Courts should thus favour an interpretation of the ESA that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible”, over an interpretation that does not do so.
- Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship.
The employer argued that there was severability clause which it suggested could excise the illegal portions of the termination clause and leave the balance of the contract intact. The Court of Appeal declined to do so on the basis that a severability clause cannot have any effect on clauses of a contract which have been rendered void by a statute such as the ESA.
In the end, the Court decided that the employer was unable to rely on the “without cause” provisions of the employment contract because the “for cause” provision violated the ESA. As a result, the employee will be entitled to common law notice and not the limited notice prescribed by the “without cause” termination provision.
Lessons to Learn
It is important, in light of this ruling, that employers review their employment contracts to determine if their “for cause” termination provisions comply with the ESA. If they do not, employers should consider revising their contracts to ensure compliance. Failure to do so may result in employees who are terminated “without cause” becoming entitled to their full common law entitlements, instead of what is agreed upon in the contract.
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