Labour & Employment Law Blog

The Ontario Court of Appeal Released a Decision That Will Have a Big Impact on How Employers Draft Employment Agreements

Zeilikman Law

Zeilikman Law

Case Summary

A recent decision by the Ontario Court of Appeal majorly shifts the employment law landscape relating to the enforceability of termination provisions in employment agreements.

The facts of the Ontario court of appeal’s case of Waksdale v. Swegon North America, 2020 ONCA 391, are surprisingly simple.  The appellant employee, Benjamin Waksdale (“Mr. Waksdale”), was employed by the respondent employer, Swegon North America Inc. (“Swegon”), from January 2008 until he was dismissed without cause in October 2018.  Mr. Waksdale was paid by Swegon an amount equal to two weeks pay in lieu of notice.  Mr. Wakdsale then sued for wrongful dismissal.

Mr. Waksdale’s employment agreement contained two provisions related to termination.  There was one termination provision that spoke to termination “with cause.” Swegon conceded that this provision failed to comply with the Employment Standards Act, 2000, S.O. 2000, c. 41 (“ESA”).  However, Mr. Waksdale was not terminated for cause, and as such, Swegon argued that the provision that set out termination “with notice” (or termination without cause) would stand, as this provision did not violate the ESA.

The motion judge agreed with Swegon and dismissed the motion for summary judgment and Mr. Waksdale’s claim.  The motion judge set out that the provision for termination “with notice” was clear and did not violate the ESA.  The motion judge also set out that the provision for termination “with notice” was apart from the provision for termination “with cause,” and could be relied upon by Swegon.

Now while the facts above are mundane, the Ontario Court of Appeal’s decision is anything but boring.  In fact, the decision will have massive implications to employers and employment contracts in the province of Ontario.
The Ontario Court of Appeal completely did away with the motion judge’s decision.  They held that the motion judge erred in their interpretation of the law and that in fact both termination provisions in Mr. Waksdale’s employment agreement were unenforceable.

The Ontario Court of Appeal went on to set out that, an employment agreement must be interpreted as a whole and “not a piecemeal basis.”  Therefore, it is irrelevant that a termination provision is found in one place in the employment agreement and not the other or if the termination provisions were separated or not.  The termination provision must be read as whole.  They disagreed that a court can interpret the “with cause” termination provision separate from a “without cause” or “with notice” termination provision.

Further, it did not matter to the Ontario Court of Appeal that Swegon did not rely on the termination “for cause” provision that violated the ESA.  The Ontario Court of Appeal confirmed an established principle that termination provisions within employment contracts must be viewed by the courts at the time in which they were drafted.  Whether the employer ultimately relies upon a provision or not is irrelevant to the analysis.

It also did not matter that Mr. Waksdale’s employment agreement contained a severability clause.  The Ontario Court of Appeal held that a severability clause cannot be used to sever the termination provision that violated the ESA from the employment agreement.

Our Thoughts

The Ontario Court of Appeal case of Waksdave v. Swegon North America, 2020 ONCA 391, majorly shifts the employment law landscape.  It is now the law that an employer’s “for cause” termination provision can void a termination provision “without cause” contained in the same employment agreement or contract if the “for cause” termination provision violates the ESA.

Is this a good thing?  That depends on whether you are the employer or the employee.  This case certainly represents yet another way in which an employee may argue that their employment contract is void and that they are owed common law notice.  Common law notice generally benefits the employee far more than the statutory minimums contained in the ESA and this is why the employer seeks to contain the notice period to the ESA in the employment contract.

However, this case also represents yet another confounding problem that an employer has to deal with in respect to their employment contracts.  Previously, the employer only had to be concerned whether the “without cause” termination provision would violate the ESA in their employment agreements.  They thought that with a severability clause they would be able to contain any liability for common law notice to the termination provision that dealt with a “without cause” termination. Now the employer must be concerned that contractual wording in both “without cause” and “with cause” terminations do not violate the ESA in order to prevent liability for common law notice even if the termination was “without cause.”

We would strongly urge any employer with an employment contract to review that contract with an employment lawyer in order to ensure that everything in the contract is ESA compliant as much as possible. If that provision needs to be changed, the employment lawyer should be able to effectively guide the employer on how to do that in order to prevent liability.  It is not simply the case that the employer can shove a revised employment agreement under the nose of their existing employees and expect that the new employment agreement will hold water in the future.  While there will be some costs associated with this review and possible amendment to their existing employment agreements, it would probably still be well less than the associated risk of paying common law notice to a terminated employee in the future.

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.