As many employers know, enforceable termination clauses that limit employees’ common law termination entitlements are essential to minimize the costs involved with ending employment relationships, but courts strictly scrutinize and frequently refuse to enforce such clauses, often for very technical reasons. Under the common law, employees are entitled to reasonable notice of termination of their employment, or pay in lieu thereof, unless the employer and employee agree to a lesser notice entitlement in their employment agreement. However, termination clauses that purport to contract out of the minimum standards prescribed by the Employment Standards Act, 2000 [ESA] are void, which results in an employee becoming entitled to reasonable notice at common law, often greatly exceeding the minimum entitlements under the ESA. To prevent issues with enforceability, termination clauses must be drafted with great care and precision, because if any part of a clause violates the ESA then the entire clause is void.
The case law interpreting the type of contractual language that will be enforced is always evolving, however the Ontario Superior Court of Justice’s (“ONSC”) recent decision in Waksdale v Swegon North America Inc. [Waksdale] provides some good news for employers seeking to rely on termination clauses that they may already have in their existing employment agreements.
The Decision in Waksdale v Swegon North America Inc.
In Waksdale the Ontario Superior Court (“ONSC”) held that, where an employment agreement contains multiple “stand-alone” termination clauses or provisions, such as in relation to dismissal on a with and without cause basis, the fact that one clause is unenforceable for violating the ESA’s minimum standards does not affect the validity of the other clause. Essentially, if the valid clause is enforceable, separate, and applies to a dismissed employee, then the other unenforceable clause is irrelevant and the applicable termination clause will be upheld.
In this case, Mr. Waksdale was dismissed on a without cause basis after 8 months of employment. His employment agreement contained two separate provisions: a without cause provision (the “Without Cause Provision”) and a with cause provision (the “With Cause Provision”).
On a motion for summary judgement, the court found that Mr. Waksdale was not entitled to common law reasonable notice, despite that the With Cause Provision was unenforceable for violating the ESA. Because Mr. Waksdale’s employment agreement contained a separate Without Cause Provision that complied with the ESA, the court held that this provision applied and was enforceable on its own express terms. In particular, the court found that the two provisions were separate and that the unenforceable With Cause Provision did not apply because “the Termination for Cause clause itself specifically states that it applies only ‘[i]f the Company terminates [the employee’s] employment pursuant to this Section’”, which it did not. Consequently, Mr. Waksdale was only entitled to 2 weeks of termination pay pursuant to his employment agreement.
Interestingly, the ONSC also stated in obiter dicta that the inclusion of a severability provision in Mr. Waksdale’s employment agreement was irrelevant; there was no need to sever anything from the Without Cause Provision since there were no grounds on which to challenge the enforceability of that provision.
Waksdale affirms the ONSC’s 2018 decision in Khashaba v Procom Consultant Group Ltd. (please refer to our previous blog post), another case in which an employment agreement contained multiple termination clauses that were separate where one was enforceable and the other was not. In Khashaba, the ONSC held that “non-compliance with the ESA in one of the clauses will not void the entire agreement, and that the remainder of the agreement’s clauses, including the termination without cause provision, remain valid and enforceable”, such that the employee was only entitled to the minimum termination entitlements required by the ESA.
Although these two recent ONSC decisions are not binding precedents, it is likely that other Ontario courts will follow these decisions such that an unenforceable termination clause in an agreement containing multiple “stand-alone” clauses is unlikely to affect the enforceability of a separate, applicable, and otherwise valid termination clause. Therefore, where employers have employment agreements containing multiple termination clauses that are separate, but have concerns that an inapplicable termination clause may be unenforceable, they can have some confidence that any other termination clauses that are separate, applicable, and otherwise valid will be enforceable.
Waksdale is good news for employers, especially employers who have agreements containing with cause termination clauses that have not been revised recently to ensure compliance with the ESA and that are separate from their without cause clauses. While Waksdale is favourable for employers, other recent Ontario decisions have created uncertainty about the enforceability of certain language that is commonly used in with cause termination clauses. For example, while the with cause termination clause in Khashaba did not apply in the circumstances, the court nonetheless commented that it violated the ESA. This was because the with cause termination clause allowed the employer to dismiss an employee without notice or pay in lieu thereof for conduct meeting the standard of just cause at common law (and without there being a “saving” provision), which is a lower standard than that of “wilful misconduct” or “wilful neglect of duty” under the ESA. To be clear, however, other recent decisions such as Alarashi v Big Brothers Big Sister of Toronto have declined to find with cause termination clauses void for employing similar language as the with cause termination clause in Khashaba (i.e. providing for no notice where there is a “serious breach” of the agreement) but that was due to other language in the clause implying that the clause should be interpreted as intending to comply with the ESA’s “wilful misconduct” standard. Nevertheless, employers that have employment agreements containing a suspect with cause termination clause can have some confidence in relying on their without cause clause where applicable, so long as it is separate and otherwise enforceable.
As always, employers would be well-advised to periodically review and revise the termination clauses in their employment agreements to guard against unenforceability arising from changes in the law. Nonetheless, where an employer is interested in including multiple termination clauses in an employment agreement, they should ensure that each clause is unambiguous, enforceable, and clearly separate from the others to reduce the risk of any inadvertent non-compliance with the ESA rendering the entire termination provision unenforceable.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.