Enforceability of Termination Clause
Update by Parmvir Padda, Lawyer and Erin Brandt, Cofounder
It is established law that a termination provision in an employment agreement must meet the minimum requirements of the Employment Standards Act (see our Employment Law Essentials: Contract Law and Employment Standards Minimums below). What happens, though, when a termination clause almost meets those minimum requirements? This was the question answered by an Ontario court in Waksdale v. Swegon North American Inc., 2020 ONCA 391 (“Waksdale”).
Background
Mr. Waksdale began employment with Swegon North America Inc. (“Swegon”) in the role of Director of Sales. After ten months of employment, Swegon terminated Mr. Waksdale’s employment without cause and paid him two weeks’ pay in lieu of notice, as required under Mr. Waksdale’s employment contract.
Mr. Waksdale sued Swegon for wrongful dismissal, arguing Swegon did not provide him with reasonable notice of dismissal.
Mr. Waksdale’s employment contract contained two termination clauses:
Termination without cause (i.e. with reasonable notice or pay in lieu of notice); and
Termination for cause.
While the without cause section of Mr. Waksdale’s employment agreement complied with the Ontario Employment Standards Act (the “Act”), the termination for cause section did not. Accordingly, Mr. Waksdale argued both clauses were unenforceable. Swegon conceded the for cause section was unenforceable, but argued the without cause section was enforceable as the only section relied on with respect to Ms. Waksdale’s termination.
Decision
So what happens if one clause is unenforceable; can the other still be relied on?
The short answer? No.
In its analysis, the Ontario Court of Appeal clarified that employment agreements must be read as a whole, not in a piecemeal fashion. Even though the termination for cause section wasn’t relied upon by Swegon, in reading the employment agreement as a whole, its presence in the contract caused the termination without cause provision to be unenforceable as well. This left Mr. Waksdale entitled to common law reasonable notice, a situation we expect Swegon had hoped to avoid.
Key Take Away for Employers
In Ontario, Waksdale has fundamentally altered the enforceability of a without cause termination provision that is paired with an unenforceable with cause termination provision. Going forward, every element in a contract relating to termination must comply with the minimum requirements of the Employment Standards Act.
For British Columbia employers, Waksdale is relevant to Ontario based employees. While Waksdale has not yet been applied in British Columbia, we are keeping an eye on it, as it could happen in the future.
Key Take Away for Employees
For employees, Waksdale offers a fresh angle to attack a termination provision in a contract which might limit your right to additional severance. It is a good reminder to have your employment contract and severance offer reviewed by an employment lawyer prior to signing a release as you may be entitled to more than you think.
