Labour & Employment Law Blog

More Developments in Employment Termination Clauses in the Wake of the Waksdale Decision

More Developments in Employment Termination Clauses in the Wake of the Waksdale Decision

Remember Waksdale v. Swegon North America, 2020 ONCA 391 (“Waksdale”)?  If not, do not despair because you can read all about that decision here. To remind our readers, back in July 2020, the Ontario Court of Appeal released the Waksdale decision and it caused a bit of a stir in the employment law community.  So why are we bringing up Waksdale in this blog?  Well, Waksdale has just been followed by a lower court in the decision of Sewell v. Provincial Fruit Co. Limited, 2020 ONSC 4406.

The facts of this case, like Waksdale, are simple.  The plaintiff, Kevin Sewell (“Mr. Sewell”) was employed by the defendant, Provincial Fruit Co. Limited (“Provincial Fruit”) in a senior sales role from October 2018 to April 2019 when he was terminated on a without cause basis.  Provincial Fruit paid Mr. Sewell two weeks’ salary and benefits pursuant to what was set out in the employment agreement.  Mr. Sewell then sued for wrongful dismissal and brought a summary judgment motion to determine the appropriate notice period.

Mr. Sewell’s employment agreement contained two provisions related to termination.  The first termination provision spoke to termination “with cause.”  This provision set out that Provincial Fruit was entitled to terminate Mr. Sewell at any time and without notice for just cause.  The second termination provision spoke to termination “without cause.”  This provision set out that Provincial Fruit could terminate Mr. Sewell at any time as long as Provincial Fruit provided Mr. Sewell with payment in an amount that could be a combination of notice or severance pay as “may be required by the Employment Standards Act, 2000 as amended from time to time.”  Mr. Sewell argued that these provisions were unenforceable and he was free to demand notice pursuant to the common law.  Again, like the employer in Waksdale, Provincial Fruit was not relying on the “with cause” provision in order to terminate Mr. Sewell.

The motion judge agreed with Mr. Sewell and applied Waksdale to Mr. Sewell’s case.  The judge held that the employment agreement violated the minimum standards set out in the Employment Standards Act, 2000, S.O. 2000, c. 41 (“ESA”) and was therefore unenforceable by Provincial Fruit. The motion judge went on to set out in Sewell that, as in Waksdale, an employment agreement must be looked at as a whole and the court should exercise discretion in favour of “protecting employees.”

The motion judge held that Provincial Fruit’s employment agreement violated the ESA for two reasons.  The first was that the “without cause” termination provision combined notice and severance pay entitlements, which is a violation of the ESA.  The second is that the “with cause” termination provision was also a violation of the ESA because it contracted around the ESA requirement to provide notice except in cases here the employee has engaged in “willful misconduct.”  It is here where the motion judge applied Waksdale.  The motion judge set out in paragraph 19 of Sewell, that the “with cause” termination provision was illegal and that based on the reasoning of the Court of Appeal, the agreement must be read as a whole and set aside if one or more of the terms are illegal, even “if the offending term is not at issue in the instant case.”

Interestingly, the motion judge also specifically set out in Sewell, that it is “reasonable” for an employee to sign an employment agreement without “parsing out the potential meaning” of a termination provision or seek independent legal advice given the “power differential” between an employer and employee.

Our Thoughts

We really get so see Waksdale in action with Sewell.  It is also a good illustration for our readers to see how common law jurisprudence works.  It seems that the courts in Ontario are not at all backtracking from the controversy of Waksdale but are continuing with the shifts in the legal landscape caused by Waksdale.  As it sits now, it is the law in Ontario that an error in one termination provision will cause the entirety of the agreement to be unenforceable despite the fact that the illegal provision is not an issue with respect to the issues at hand. This also means that navigating the termination of an employee is more complicated than meets the eye and employers should consider their options carefully when doing so.

The above article is for general information purposes only, does not constitute legal advice or create a solicitor-client relationship. Because each case is unique and factually driven, if you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere. We represent clients in the Greater Toronto Area including Toronto, North York, Markham, Vaughan, Thornhill, Newmarket, Aurora, Brampton, Mississauga, Barrie, Ajax, Whitby, Pickering and Oshawa.