June 24, 2020by Israel Foulon LLP
In Waksdale v Swegon North America Inc., 2020 ONCA 391, the court held that where a termination clause in a contract of employment contains even a single violation of an employment standard in the termination section (in the just cause termination provision, in this specific case), the entire termination clause (including the without cause provision) is void and inoperable for all purposes.
The employer terminated the Plaintiff, Benjamin (“Ben”) Waksdale’s employment on a without cause basis. Upon his termination, Ben had worked for eight months and was earning roughly $200,000 a year. The employment agreement contained two separate provisions for terminating the employment relationship With Notice and For Cause. According to the terms of the agreement for the With Notice provision, he was entitled to one week’s notice – or rather the minimum notice requirements outlined in the Employment Standards Act, 2000 (“ESA”).
Following his without cause termination, Ben brought a claim for wrongful dismissal, claiming that the For Cause termination provision in his contract violated the ESA and that as a result he was entitled to 6-8 months notice at common law.
The employee argued that the defective clause impacted the entire agreement – or at the very least rendered both termination clauses void and unenforceable.
Motion for Summary Judgment
On a motion for summary judgment, the employer conceded that the For Cause provision was void and unenforceable. However, it argued that since they had not alleged cause, they could still rely on the With Notice provision. The motion judge agreed holding that the With Notice provision was stand-alone, unambiguous, and enforceable. Additionally, the contract contained a severability clause that acted as a safety net excising any portions of the agreement that ran afoul of employment standards.
The Ontario Court of Appeal
On appeal, the Court of Appeal unanimously reversed the motion judge’s decision, holding that the motion judge erred when he interpreted the employment agreement on a piecemeal basis. The court held that the correct approach is to assess whether the provisions in the agreement, when read as a whole, violate the ESA. As a matter of policy, the court stated that an employer receives a tangible benefit where they include illegal provisions in the contract, as employees unfamiliar with their rights will strive to comply with their contractual obligations.
In overturning the Motion Judge’s decision, the court made three critical observations:
- It is irrelevant whether the termination provisions are contained in one paragraph or as part of separate and distinct clauses. If any part of a termination clause violates the ESA, all of its constituent provisions are rendered void by statute.
- Every termination clause must be evaluated by its wording at the outset of the employment relationship. The manner in which the employee is terminated plays no part in assessing the validity of the termination clause.
- A severability clause cannot save a defective termination clause that has been made void by statute.
Review Your Employment Contracts This case is likely to have wide-ranging ramifications for both employees and employers. Many (if not most) employment contracts we see on a regular basis contain deficiencies similar to the deficiency contained in the Wakesdale case. In order to avoid costly mistakes, employers must ensure that their contractual templates are annually reviewed, clearly written, and do not contain passages that unintentionally run afoul of employment standards legislation. The courts’ continued crackdown on employment contracts shows that they will not afford employers a safety-net of any kind. This case makes clear that if an employment agreement contains any clause that may run afoul of the ESA (in any manner) there is a significant risk that a court may conclude that the entire termination clause is void.