February 8, 2021by Israel Foulon LLP
On January 14, 2021, the Supreme Court of Canada (“SCC”) denied leave to appeal the decision in Waksdale v Swegon North America Inc., 2020 ONCA 391 (“Waksdale”). Following a year devoid of typical summer blockbusters, the decision in Waksdale provided more than enough drama and intrigue to fill the void. The resulting fallout has left many provincially regulated employers with unenforceable termination clauses in their employment contracts.
The decision in Waksdale involved an employment agreement that purported to contract out of a minimum employment standard. Specifically, it permitted the employer to terminate an employee “for cause”, for reasons which would fall below the Employment Standards Act, 2000 (“ESA”) standard of wilful misconduct. The employer terminated the employee on a without cause basis, and the employee sued on the grounds that a defect in the With Cause provision invalidated the entire agreement. The motion judge rejected the employee’s argument. However, the Ontario Court of Appeal set aside the motion judge’s decision and gave effect to the employee’s argument, holding that the employee was entitled to reasonable notice at common law.
The employer had conceded that the With Cause provision was invalid. However, they argued that the agreement contained two distinct and unrelated termination provisions, dependent upon the nature of the employee’s termination. The employer argued that even if the With Cause provision was invalid, it should not affect the validity of the Without Cause provision. Moreover, the agreement contained a severability clause that could be used to cut out any illegal provisions.
The Court of Appeal held that an employment agreement must be interpreted as a whole to determine whether it violates the ESA, and that the courts will not enforce a termination provision that is in whole or in part illegal. The court also concluded that a severability clause cannot save provisions of a contract that have been made void by statute.
You can review our full breakdown of the Waksdale decision in our previous blogpost HERE.
Take Away for Employers – Have Your Employment Contracts Reviewed
Prior to Waksdale, “for cause” termination clauses received minimal attention, as the validity of such provisions were rarely argued before the courts. As the SCC has denied leave, Waksdale is the binding authority in Ontario for interpreting the validity of an employment agreement. The Court’s decision in Waksdale makes clear that if an agreement contains a single defect, a court may conclude that the entire termination clause is void.
If you are a provincially regulated employer, it is imperative that you have your employment agreements reviewed, and revised and updated if required, to reflect the Court’s decision in Waksdale. This involves assessing the validity of all of the provisions in the termination section. Employers should strongly consider updating their agreements prior to hiring any new employees. For existing employees, employers would need to provide some form of new consideration (a signing bonus, merit increase, promotion, etc.) in exchange for signing new agreements with updated termination provisions in order to have an enforceable termination clause in the employment agreement. We strongly advise that you contact our firm for assistance with reviewing and implementing revised contracts (as required).
This is an area of law that is constantly evolving. As such, it is important that all employers (whether provincially or federally regulated) ensure that their contractual templates are reviewed on an annual basis to ensure that they do not contain passages that unintentionally run afoul of employment standards legislation and stay in-line with the evolving case law.