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Feeling Claustrophobic? Court of Appeal Adds to Employer Anxiety Around Termination Clauses

If you are reading this blog, you are probably well aware of the perils of failing to include an appropriate “without cause” termination provision in an employment contract (see some of our other blogs on the topic here and here). Unfortunately for employers, the recent Court of Appeal decision in Waksdale v Swegon North America Inc., 2020 ONCA 391 has made it clear that even legally enforceable without cause provisions can be invalidated by unenforceable “with cause” termination provisions within the same contract.

The employee in the case was terminated without cause after approximately eight months of service. In line with the employment contract, the employer provided the employee with two weeks’ pay in lieu of notice. The employee sought damages for wrongful dismissal in the amount of six months’ pay in lieu of notice through summary judgment motion.

The employee, while recognizing the legitimacy of the without cause termination provision, argued that it should be invalidated because of the presence of an invalid with cause termination provision in another section of the contract. The company conceded that the termination without notice provision was unenforceable, but that it had no impact on the enforceability of the termination with notice provision. Although the language of that provision is not provided in either the lower court or Court of Appeal decision, you can find the language here. The motion judge ruled in favour of the employer, finding the two termination clauses to be distinct.

The Court of Appeal, in a relatively short decision, overturned the lower court decision, finding that:

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. Here the motion judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect. “

Because courts are required to assess enforceability of termination provisions as at the time the contract is entered into, it was irrelevant whether the company attempted to rely on the impugned provision in the circumstances. In the Court of Appeal’s view, even where an employer does not attempt to rely on an illegal for cause termination clause, it may still obtain the benefit of that clause due to its potential impact on a naïve employee’s understanding of his or her legal rights and obligations in respect of their employment relationship.

The Court of Appeal also rejected the company’s alternative argument in respect of a general severability clause in the agreement due to the fact that the without cause termination clause had been invalidated by statute.

This case is an excellent reminder to employers that employment contracts must be read as a whole, in light of the protections in the Employment Standards Act, 2000, and that courts are eager to ensure that minimum standards for employees are upheld. It also highlights the importance of ensuring that contracts are adapted to the latest legal developments, as decisions like Waksdale often have the effect of undermining agreements previously thought to be air tight. CCPartners can assist in reviewing, updating and drafting employment contracts and policies. Click HERE for a list of our team members who can help you with your employment needs.

Click HERE to access CCPartners’ “Lawyers for Employers” podcasts on important workplace issues and developments in labour and employment law.



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