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When Does an Enforceable Termination of Employment Provision Become Unenforceable?

In a recent decision, Waksdale v. Swegon North America, 2020 ONCA 391, the Ontario Court of Appeal (“ONCA”) held that a “without cause” termination provision in an employment agreement was unenforceable because a separate “with cause” termination provision did not comply with the Ontario Employment Standards Act, 2000 (the “ON ESA”).

Mr. Waksdale had been employed by Swegon for eight months when he was dismissed without cause. His employment agreement provided that if employment was terminated without cause, he would receive one week of notice or pay in lieu of such notice in addition to the minimum notice or pay in lieu of such notice and statutory severance pay as may be required under the ON ESA. Swegon provided Mr. Waksdale with the payments required under the terms of the employment agreement.

In his claim of wrongful dismissal, Mr. Waksdale did not dispute the enforceability of the without cause termination provision in the employment agreement. Rather, he argued that the termination with cause provision violated the ON ESA which made the termination provisions as a whole unenforceable and therefore he should be entitled to reasonable notice at common law. The employer conceded that the termination with cause provision violated the ON ESA but argued that was irrelevant as it was not relying on that clause of the agreement.

The lower court dismissed the Plaintiff’s claim on the basis that the without cause termination provision was unambiguous, enforceable and stood apart from the for cause termination language.

While the ONCA agreed that the without cause termination provision was unambiguous, it struck down the entire termination provisions finding that such provisions must be read as a whole. Since the with cause termination provision breached the ON ESA, the termination provisions as a whole were unenforceable. In particular, the ONCA stated:

While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal. In conducting this analysis, it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked.

The fact that the employer did not ultimately rely on the with cause termination provision was also held by the ONCA to be irrelevant as the enforceability of termination provisions is determined at the time the agreement is executed.

The employer tried to rely on the severability clause of the contract which provided as follows:

You agree that if any covenant, term, condition or provision of this letter outlining the offer of employment with the Company is found to be invalid, illegal or incapable of being enforced by a rule of law or public policy, all remaining covenants, terms conditions and provisions shall be considered severable and shall remain in full force and effect.

However, the ONCA held that “a severability clause cannot have any effect on clauses of a contract that have been made void by statute”. Having found that the two termination provisions must be understood together, a severability clause could not be used to sever the offending provisions.

For all employers, this decision is a reminder to regularly review template employment agreements as the law in this area is frequently changing. For employers with Ontario employees in particular, we recommend reviewing your current employment agreements to ensure all termination provisions, even if in completely separate sections, comply with the ON ESA. While this decision is not precedential in B.C., it will invariably be relied on by plaintiff counsel and will be considered by B.C. courts in the future. We will keep you apprised of developments. 

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Lawson Lundell's Labour and Employment Law Blog provides updates on the most recent legal developments impacting the Canadian workplace and offers practical tips for employers. We cover a range of topics, including labour relations, employment law, collective bargaining, human rights, employment standards, employment equity, workers' compensation, business immigration, privacy, occupational health and safety and pensions and employee benefits. 

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