Startling new case on termination clauses: Waksdale v. Swegon North America

7 juillet 2020 | André R. Nowakowski, Mohammad Leghari

( Disponible en anglais seulement )

The recent decision of the Court of Appeal for Ontario in Waksdale v. Swegon North America could significantly impact many employment termination provisions in Ontario.  The Court held that a “for cause” termination provision in an employment contract that was not compliant with the Employment Standards Act, 2000 (“ESA”) rendered the “without cause” termination provision unenforceable. Further, the inclusion of a severability clause in the contract was found not to save the “without cause” provision.

While an employee can be dismissed without advance notice for “just cause” at common law, the relevant threshold in the ESA is “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” This was the Court’s basis for finding the cause provision an invalid attempt to contract out of the ESA.

Facts and Background

The plaintiff was hired by Swegon North America (“Swegon” or the “company”) in January 2018 as its Director of Sales. His contract contained both “for cause” and “without cause” termination provisions.

He was terminated without cause after eight months and provided with the entitlements stipulated in the employment contract, including two weeks of termination pay. Mr. Waksdale sued for wrongful dismissal and moved for a summary judgement, seeking six months of damages in lieu of reasonable notice.

Decision of the Motion Judge

The Motion Judge found the without cause provision valid, denied the summary motion, and awarded $16,000 in costs to Swegon.

The issue before the Court was whether the termination provisions in Mr. Waksdale’s contract were enforceable. Mr. Waksdale’s lawyer conceded that the “without cause” termination provision of the contract was valid and compliant with the ESA.  However, the lawyer argued that the “for cause” termination provision was not.  As such, he argued that both termination provisions were unenforceable, because Swegon had a path to opt out of the minimum standards of the ESA.

Swegon’s counsel acknowledged the defects of the “for cause” termination provision and agreed that the provision was rendered void.  However, Swegon argued the defect did not affect the otherwise valid “without cause” provision. Provided that Mr. Waksdale’s employment was terminated without cause, Swegon argued that the “without cause” termination provision could be relied upon as a discrete provision. Furthermore, the contract also contained a “severability clause”, the effect of which was to sever any provision in the contract that did not comply with the law or was otherwise unenforceable.

The Motion Court agreed with Swegon’s arguments and reiterated that the “without cause” termination provision was a stand-alone provision that complied with the ESA.  The Court found that the unenforceability of the “for cause” provision had no bearing.

This decision was appealed.

Decision of the Court of Appeal for Ontario

The Court of Appeal for Ontario set aside the decision of the Superior Court, finding that the motion judge erred in law in his interpretation of the employment contract. The Court of Appeal held that both provisions must be read together as a whole and were, thus, not enforceable since the “for cause” provision did not comply with the ESA.

In arriving at this decision, the Court of Appeal stressed the remedial nature of the ESA, noting that the intent of the legislation is to protect the interests of the employee in acknowledgement of the power imbalance that exists in the relationship between an employer and an employee.  The Court added that “Courts should thus favour an interpretation of the ESA that ‘encourages employers to comply with the minimum requirements of the Act.’”

With regard to the question of whether the two termination provisions under consideration were discrete, the Court stated that the contract must be interpreted as a whole and not piecemeal, and that the issue was whether the termination provisions in the agreement taken as a whole violate the ESA.

The Court of Appeal found that the “for cause” termination provision created the potential for mischief by which the employer could be in a position to potentially gain a benefit from the illegal clause, and that the severability clause did not save the “without cause” term.

Conclusion

It is important to note that the actual language in the impugned clause was not reproduced in the decisions.  However, this case has the potential to impact many termination provisions, as most will reiterate the common law principle that the person’s employment may be terminated without advance notice for cause, without referencing the arguably higher threshold of the ESA.  Even the most generous severance clauses normally do so.

There appears to have been no discussion of whether the clause as a whole provided a greater right or benefit, which then could be enforceable pursuant to the ESA.  It is unclear whether the “without cause” clause was more generous or not.  It is to be hoped that this decision will be appealed further.  In the meantime, employers should seek legal advice to review and reconsider the language in their existing employment agreements and templates to address this potential concern.

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