Termination Clauses in Employment Contracts: Waksdale v. Swegon North America Inc., 2020 ONCA 391

Termination Clauses in Employment Contracts: Waksdale v. Swegon North America Inc., 2020 ONCA 391

Written By: G. (Guy) Valle, Articling Student

The recent Ontario Court of Appeal decision Waksdale v. Swegon North America Inc., 2020 ONCA is significant because if one termination clause in an employment contract is found to contravene the applicable employment standards, the balance of the termination provisions could be found to be unenforceable even in the presence of a severability clause.

I.                   The Facts:

Swegin North America terminated Waksdale on a without cause basis after 8 months of employment.  Waksdale sued for wrongful dismissal.

The relevant employment agreement included a “Termination of Employment with Notice” provision which stated that if the employee was terminated without cause, he would receive 1-week notice or pay in lieu in addition to the minimum notice and statutory severance.  The Agreement also contained a “Termination for Cause” provision, which the parties agreed contravened the Employment Standards Act, SO 2000 c 41, because some of the grounds listed were inconsistent with the Act’s requirement for willful misconduct.

The employer argued that since the employee was not terminated for cause, the for cause provision was irrelevant to the determination of the employee’s entitlement to payment-in-lieu of notice.  In the alternative, the employer argued that the Agreement contained a severability provision, which made any contravening provision severable from the rest.

II.                The Motions Judge:

The Motions Judge agreed that “employment agreements are generally to be interpreted as delineating and enforcing employees’ rights.”  However, “this principle cannot be stretched to the point of finding ambiguity where none exists.”  Since the Plaintiff’s termination was not for cause, that provision did not apply and there was no reason to challenge it / comment on its enforceability.

The Motions Judge held in favour of the employer, but the employee appealed to the Ontario Court of Appeal.

III.             The Ontario Court of Appeal:

The Ontario Court of Appeal set aside the Motion Judge’s findings in a unanimous decision noting, at para. 10, that:

“…an employment agreement must be interpreted as a whole and not on a piecemeal basis.  The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA [Employment Standards Act].  Recognizing the power of imbalance between the employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESA rights.”

At para. 12, the Court noted that:

“the mischief associated with an illegal provision is readily identified.  Where an employer does not rely on an illegal termination clause, it may nonetheless gain the benefit of the illegal clause…”

For those reasons, the motion judge failed to read termination provisions “as a whole and instead applied a piecemeal approach without regards to their combined effect.”  Essentially, the Court of Appeal held that both termination provisions had to be read together as one clause.

IV.             What about the severability clause? 

Severability clauses are frequently inserted into employment agreements to avoid exactly this issue – they generally provide that if one or more provision(s) are unenforceable they can be severed from the agreement overall leaving the balance of the agreement unaffected to the greatest possible extent.

Ultimately the Ontario Court of Appeal declined to apply the severability clause in this case because the clause could only have applied to sever both termination provisions (they could not be severed from each other) and therefore it was of no assistance to the employer.

V.                Application for Leave to Appeal:

The employer’s application for leave to appeal to the Supreme Court of Canada was denied on January 14, 2021.

VI.             Takeaway for Employers

It is important for employers to be mindful of, and compliant with respect to the applicable employment standards.  The inclusion of a severability clause should remain the general practice.  It is equally advisable to take notice of the delicate balance that needs to be struck between the enforcement of rights-restricting provisions favouring employers, and ensuring that provisions that are contrary to employment standards legislation are not unintentionally or indirectly permitted to stand. While the Alberta Employment Standards Code differs from the Ontario Act in some important ways, an Alberta Court would likely find the underlying analysis in the Ontario Court of Appeal’s decision to be persuasive.

If you have any questions about this or other matters, please contact a member of our Labour & Employment practice group.

 

Disclaimer: This article is to be used for educational and non-commercial purposes only. Parlee McLaws LLP does not intend for this article to be a source of legal advice. Please seek the advice of a lawyer before choosing to act on any of the information contained in this article.