Enforceability of Termination Clauses and the Latest Blow to Employers – Waksdale v. Swegon North America Inc. (2020 ONCA 391)
Termination clauses are often relied upon by employers to define an employee’s severance entitlement when an employee is terminated without cause. These clauses are often drafted to limit an employee’s entitlement to their statutory minimums, which are significantly less than the employee’s entitlement at common law. If an employment contract contains no termination clause or an unenforceable termination clause, then the common law will apply.
The courts generally dislike termination clauses that seek to limit the employee's entitlement upon termination to their minimum entitlements under employment standards legislation. Courts have consistently found that the employee’s statutory notice and severance entitlements will usually not ensure that they will continue to receive their salary and benefits until such time as they are able to find a new comparable job. If a termination provision is ambiguous or provides the employee with a lesser right or benefit than their entitlements under employment standards legislation, then the clause will be unenforceable and the employee is entitled to reasonable notice at common law.
In June 2020, the Court of Appeal for Ontario in the decision of Waksdale v. Swegon North America Inc. determined that if any part of the employer’s termination scheme is unenforceable, then the entire termination scheme will be void and the common law will apply. Previously, the courts had held only the offending part(s) would be unenforceable, while the other provisions would remain in effect (see the 2018 decision of Khashaba v. Procom Consultants Group Ltd.)
In Waksdale, the parties agreed that the termination provisions were unenforceable. An employee who is terminated without cause has entitlements pursuant to the Employment Standards Act, 2000 and the common law. In order to deprive an employee of their termination entitlements under the Employment Standards Act, 2000, the employer must prove that the employee was “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” This standard is higher than the “just cause” standard at common law. Since there are two different standards, there could be scenarios in which an employee would have no entitlement at common law if the “just cause” standard was met, but would have an entitlement under the Employment Standards Act, 2000 if the “wilful misconduct” standard was not met. Accordingly, termination provisions which state that the employee would have no severance entitlement whatsoever in the event that their employment was terminated for just cause would be unenforceable, since they do not take into account the possibility than an employee who was terminated for just cause could have an entitlement under the Employment Standards Act, 2000. Although the specific termination for just cause language in question was not set out in Waksdale, it was likely for this reason that the parties agreed that these provisions were unenforceable.
In Waksdale, the court determined that if the employer's termination for just cause provisions are found to be unenforceable, then the termination without cause provisions would also be unenforceable - even if they otherwise would have been enforceable on their own - and even if the employer chooses to terminate the employee without cause. The court further concluded that the result would be the same, even if the employment contract contained a severability provision. Usually, a severability provision would ensure that the remainder of a contract would remain enforceable, in the event that a particular provision was determined to be of no force and effect. However, the court found that a severability provision could not be relied upon by the employer to uphold its termination scheme in this case. As a result, the employee was entitled to reasonable notice at common law.
It is therefore very important for employers to consult with a lawyer to determine whether their current termination language should be amended to ensure that it is compliant with the Waksdale decision. Employers should also have their employment lawyers review their termination provisions at least once per year to ensure that they continue to remain enforceable.
If you are an employer with additional concerns relating to employment contracts and the enforceability of termination clauses, please contact Marty Rabinovitch at Devry Smith Frank LLP to discuss your rights and options.
“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”