An Unenforceable “With Cause” Termination Provision Could Sink an Entire Termination Clause

An Ontario Court of Appeal decision from earlier this year has employers across Canada worried about the enforceability of their termination provisions.

Facts

The plaintiff in Waksdale v. Swegon 2020 ONCA 391, was terminated without cause after 8 months of employment. He subsequently brought an action for wrongful dismissal against his former employer and moved for summary judgment, claiming six months pay in lieu of notice.

A “without cause” termination provision in the plaintiff’s employment contract provided that he would receive “one week notice or pay in lieu of notice” in addition to the ESA minimum. The plaintiff argued that the without cause termination provision was unenforceable because the “for cause” termination provision in the employment agreement breached the terms of Ontario’s Employment Standards Act and that therefore, the plaintiff was entitled to a period of reasonable notice at common law.

Trial Decision and Appeal

The employer conceded that the “for cause” termination provision was not enforceable because it allowed for termination without notice based on minor breaches and this was inconsistent with the ESA. The employer argued that because the “for cause” termination provision was distinct from the “without cause” termination provision in the employment agreement, it was not rendered void by the unenforceability of the “for cause” provision. The contract also included a severability provision. The trial judge agreed with the employer’s argument.

On appeal, the Ontario Court of Appeal overturned the trial judge’s decision. The Court of Appeal held that the employment agreement must be read as a whole and that the entire termination clause was unenforceable because the “for cause” termination provision was invalid.

Implications for Employers in BC

The Ontario Court of Appeal’s decision in Waksdale, has led to concern among employers in other Canadian jurisdictions that the Court’s reasoning could be applied outside Ontario. However, it is important to note that differences between Ontario’s Employment Standards Act and BC’s Employment Standards Act may make it difficult for Waksdale to be followed in BC.

• Ontario’s Employment Standards Act sets out narrow grounds on which an employee can be terminated without notice. For example, it says notice is not required if “an employee has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial…”. This makes it easier for a court to find that a contractual “without notice / for cause” termination provision breaches the ESA if it specifies when notice will not be provided.
• BC’s Employment Standards Act sets out that an employee may be terminated without notice if there is just cause. This standard is broader than the one in Ontario, and means that “for cause” contractual termination provisions are less likely to be found invalid.

Nonetheless, the decision in Waksdale highlights how it is important for employers to regularly revisit their employment agreements and termination clauses and ensure they are enforceable as it suggests that an otherwise valid termination clause could be held unenforceable if another clause in the termination section is invalid.

This update was authored by Neal Parker. Questions? Comments? Concerns? Contact Neal at [email protected] or anyone else listed on the authors page.