We have written repeatedly about the ever-changing laws on the enforceability of termination clauses in employment agreements and the Ontario Court of Appeal (“ONCA”) has recently decided the case of Waksdale v Swegon North America (2020 ONCA 391) which has further added to this complex topic. At issue in Waksdale was whether the provision relating to termination for cause was in breach of the Employment Standards Act, 2000 (“ESA”), and if so, would that void the termination without cause provision within the same agreement.
In the decision, the employer conceded that the termination for cause provision breached the ESA because it failed to address the fact that there is a different test for cause under the ESA as compared to the common law. The termination with cause provision breached the ESA by failing to address this distinction, which is problematic because it would have allowed the employer to terminate an employee for an act that could be just cause at common law, but not under the higher standards of the ESA.
With respect to the termination of employment without cause provision, the employee acknowledged that it was in compliance with the minimum requirements of the ESA. The ONCA was then faced with the discrete question of whether the illegality of the with cause termination provision rendered the all of the termination provisions, including the without cause termination provision, unenforceable.
The ONCA stated that an employment agreement must be interpreted as a whole and not on a piecemeal basis and therefore, the correct analytical approach is to determine whether the termination provisions in an employment agreement, read as a whole, violates the ESA.
The ONCA recognized that, 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. The ONCA also stated that it is irrelevant that the employer was not seeking to rely on the termination for cause provision as the determination is based on the enforceability of the termination provisions at the time the agreement was executed.
Takeaways
Firstly, it is clear that, while termination provisions will be upheld, the preference of the court is to grant common law notice. Therefore, any issue in the termination provision in an employment agreement may result in it being considered void. However, what specific issues will trigger such a finding by the court and what language the court will uphold is very difficult to ascertain as the case law on interpreting termination provisions continues to change.
Secondly, employers should review any clause in their employment agreement relating to termination of the employment relationship, including termination for cause, resignation, termination without cause, and how bonuses and other terms of employment are treated upon termination. If there are issues, changes should be made and the revised agreement should be used for new hires. For existing employees, human resources should review each employee’s contract to assess risk. For the existing employment agreements with potentially problematic language, opportunities should be monitored to implement the new contracts. This could be done by way of a promotion or other beneficial changes in an employee’s employment. As the implementation of employment agreements is a complex area of the law, we recommend that you seek legal advice prior to implementing new contracts as it is important to ensure it is enforceable.