Time to Review Your Termination Clause - Even if You're Not in Ontario
At this point, we're all likely familiar with the Waksdale v Swegon North America Inc., 2020 ONCA 391 (Waksdale) case, in which the Ontario Court of Appeal held that termination clauses in Ontario employment agreements are read as a whole.
On January 14, the Supreme Court of Canada denied an application to appeal the Ontario Court of Appeal decision.
The Crux of the Waksdale Case in Plain English
If the Termination section of your employment agreement template includes several clauses, and any one of those clauses contradicts the Ontario ESA (Employment Standards Act), the entire Termination section is deemed unenforceable. This means that one of the most important clauses in your employer/employee "pre-nup" essentially evaporates.
For example, let's say the Termination section of your employment agreement includes the following 2 clauses:
- An indestructible termination without cause clause that sets out upfront the amount you, the employer, would have to pay the employee if they were to be terminated without cause.
(Termination "without cause" is by far the most common type of termination because the burden of proof to terminate "for cause" is so high. Termination without cause means you can fire an employee for any reason as long as it doesn't breach the law. An example of breaching the law would be to fire someone for discriminatory reasons.)
and; let's say
Your termination for cause provision was worded so that it contradicts the ESA.
In this case, neither of these 2 termination clauses would be enforceable. The second non-compliant “for cause” provision rendered the termination “without cause” provision unenforceable. You're left with an employment agreement with no termination provision, meaning that you would now have to pay the employee termination notice at common law (the estimated amount you would have to pay if you went in front of a judge).
What about the Severability Clause?
A severability clause is that standard set of words in an agreement that goes something like this:
"The invalidity, illegality or unenforceability of any section or provision in this Agreement shall not in any way affect or impair the validity, legality or enforceability of the remainder of the Agreement."
It's included specifically to rescue the employer in these types of situations where one clause in the employment agreement may not be enforceable but its unenforceability does not affect the enforceability of the rest of the clauses in the employment agreement.
However, the Court in Waksdale held that the severability clause did not apply because severability clauses do not have any effect on clauses that contradict the law.
Termination Clauses & Employment Agreements For Ontario
As we've known for months, Ontario employers must ensure that no clause in their termination for cause section in their employment agreements contradicts the ESA and includes specific language that mirrors the ESA about what constitutes "for cause".
If you require additional support, you may want to contact our recommended Ontario employment lawyer to understand what changes to make to your specific employment agreements for future employees, and how to get your current employees to sign a new employment contract.
Termination Clauses & Employment Agreements Elsewhere in Canada
But what about elsewhere in Canada? What does this mean for Non-Ontarians?
Employment standards in the other 4 jurisdictions that we support (Manitoba, Alberta, Saskatchewan, BC) state that an employee may be terminated without notice where the employer has “just cause” to do so. "Just cause” is not defined and would be determined according to common law principles.
While reduced, employers in these provinces are not without risk as discussed in the next section.
Take Away for All Employers
The Waksdale decision is a good reminder to all employers across Canada that courts will look at an employment agreement as a whole, and that each provision in the agreement must be enforceable on its own, regardless of a severability clause.
Otherwise, you may find that your beautifully crafted, iron-clad termination without cause clause, if nestled between other clauses that violate ESA legislation, has just been reduced to a puff of smoke.