UPDATE: Termination Clauses in Employment Agreements May be Unenforceable

In a previous blog post, we advised our clients of the recent Ontario Court of Appeal (“ONCA”) decision in Swegon North America Inc. v. Waksdale, 2020 ONCA 391, and the potential fallout for employers relying on written employment contracts and the employer’s termination provisions contained therein. To summarize, in Waksdale, the ONCA ruled that if any aspect of a written termination clause is found to contravene the Employment Standards Act, 2000 (“ESA”), the entire clause would be rendered null and void. This specifically impacts written employment agreements that specifically allow for the termination of an employee for “cause”; these provisions will often specify that if the circumstances mentioned within them are met when an employee is dismissed, the employer has no obligation to provide any termination pay or notice or other entitlements on termination (as required by the ESA).

Despite this being commonplace in many existing written employment agreements, it conflicts with the ESA, which states that employees should not lose their termination entitlements simply because just “cause” exists. Instead, the ESA lays out a higher threshold of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” before allowing termination in this manner. With the decision in Waksdale, the ONCA explicitly clarified that written termination clauses that contain termination for “cause” clauses violate or conflict with the ESA are rendered unenforceable in their entirety.

Please refer to the memo prepared by Wilton Martin Labour Lawyers from our last blog post for further information as well as the updated information below.

What’s new?:

Following the decision in Waksdale, many lawyers and employers argued that termination clauses with separate provisions for termination “with cause” and “without cause” should be saved by the existence of a severability clause; the main point being that if the section specifying termination for “cause” is the only clause in conflict with the ESA, it should be severable from the rest of the agreement and not render the entirety of the written termination provisions unenforceable as a whole.

This was the crux of the argument of the employer in Waksdale, who submitted an application for leave to appeal the ONCA’s decision to the Supreme Court of Canada. Somewhat surprisingly, on January 14, 2021, the Supreme Court of Canada rejected this argument and denied leave to appeal the decision of Waksdale, leaving the ONCA’s original decision undisturbed. This ruling confirms that courts will continue to interpret employment agreements as a whole, and not on a piecemeal basis.

It is now more important than ever for employers to carefully review and consider updating their written employee contracts with an employment lawyer to ensure proper compliance with the statutory requirements of the ESA. Employers seeking to draft new employment contracts should be careful to ensure that the terms and conditions of their agreement do not conflict with the ESA.

If you have any questions regarding the review or drafting of new employment agreements, please do not hesitate to contact Kutner Law LLP for assistance.

Kutner Law LLP is dedicated to ensuring our clients are informed of changes in the law that would impact them or their businesses, especially in these difficult and trying times. This blog post if for informational purposes only and is not to be construed as legal advice.