This Ontario Court of Appeal decision has been the talk of the town on all the Ontario employment law blogs and while we don’t like to be followers, we also wanted to make sure our readers did not miss this important decision. In Waksdale v. Swegon North America Inc. the Ontario Court of Appeal ruled on the enforceability of specific termination provisions in an employment contract, finding the “without cause” termination provision enforceable because of a flaw in the “with cause” provision.
Courts frequently come up with new ways of invalidating employer drafted termination provisions that would restrict an employee’s entitlement to notice. The enforceability of termination provisions is what lots of employment cases are about. A properly drafted termination provision in an employment contract can significantly limit an employee’s entitlement to notice of termination. For example, a long service employee terminated “without cause” could be entitled to as little as 8 weeks or as much as 2 years of notice depending on the contract.
A Closer Look at the Waksdale Termination Provisions
The “without cause” provision entitled Mr. Waksdale to the minimum amount of notice set out by the Ontario Employment Standards Act (ESA), plus one week. The provision was enforceable. It did not seek to limit Mr. Waksdale to less than the statutory minimums – this is why most “without cause” provisions are unenforceable. Here’s the provision:
“You agree that in the event that your employment is terminated “without cause,” you shall receive one week notice or pay in lieu of such notice in addition to the minimum notice or pay in lieu of such notice and statutory severance pay as may be required under the Employment Standards Act 2000 as amended. All reimbursement for business expenses shall cease as of the date of termination of your employment, however, you shall be reimbursed for legitimate business expenses that have been incurred and submitted to the Company but not as yet paid you to that date. The terms of this section shall continue to apply notwithstanding any changes hereafter to the terms of your employment, including, but not limited to, your job title, duties and responsibilities, reporting structure, responsibilities, compensation or benefits.”
This provision did not appear in either decision, but counsel agreed that it violated the ESA. While the reasons why it violated the ESA were not discussed in either decision, most “with cause” termination provisions that run afoul of the ESA do so because they state that the employee will be entitled to no notice upon termination for cause. While we generally think that for cause = no notice, the ESA defines the circumstances in which an employee is not entitled to notice narrowly. Under O.Reg. 228/01 Termination and Severance of Employment, an employee is not entitled to ESA notice of termination and severance in a “with cause” termination only if an employee is:
“guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”
The “wilful” aspect here pushes cause further than the common law. So an employee can be terminated for cause under the common law for say incompetence but as long as that incompetence was not wilful they will still be entitled to ESA minimum notice, severance and benefits continuation.
The Court of Appeal’s Reasoning in Waksdale
The Court of Appeal sided with Mr. Waksdale and decided to read the termination provisions as a whole – not separating “with cause” and “without cause” as the motion judge had done. While all agreed that the “with cause” provision was enforceable, the motion judge had allowed the “without cause” provision to stand alone because the contract contained the following severability clause:
“You agree that if any covenant, term, condition or provision of this letter outlining the offer of employment with the Company is found to be invalid, illegal or incapable of being enforced by a rule of law or public policy, all remaining covenants, terms conditions and provisions shall be considered severable and shall remain in full force and effect.”
The Court of Appeal stated as follows:
“A severability clause cannot have any effect on clauses of a contract that have been made void by statute…Having concluded that the Termination for Cause provision and the Termination of Employment with Notice provision are to be understood together, the severability clause cannot apply to sever the offending portion of the termination provisions” at para 14.
In making this ruling the Court of Appeal also highlighted the following, at para 10:
- 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. (emphasis added)
- Courts will not assist employers by enforcing termination provisions that are “in whole or in part illegal.”
- 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.
The power imbalance between employees and employers was noted, as well as the fact that the ESA is remedial legislation.
About Mr. Waksdale
A few details about Mr. Waksdale, just for those interested in the story behind all this legal talk – Mr. Waksdale was in his 40s and had worked for the Defendant for only 8 months prior to being terminated “without cause.” He earned an annual salary of about $200,000. He sued Swegon North America for 6 months of notice. He initially lost his motion for summary judgement. The motion judge sided with the defendant and decided that just because the “with cause” provision was enforceable it didn’t mean the “without cause” provision was too. Before the Court of Appeal ruled in his favour, Mr. Waksdale was stuck with only 2 weeks of notice and $16,000 in costs which he had to pay to the defendant. The Court of Appeal, after deciding the point of law in his favour, sent the case back to the motion judge to make a ruling on damages and costs.
This ruling emphasises the importance of ensuring that termination provisions are properly drafted and reviewed often. The law on termination provisions changes fast and it’s easy for employers to feel like courts are always trying to figure out ways to give employees more. If the provisions in your current contracts are not valid, new contracts can be introduced along with proper consideration. Templates should be reviewed frequently to ensure that any new agreements will be enforceable. If you have questions about the contracts being used in your organization get in touch to set up a consultation.