Supreme Court of Canada Upholds Finding that Illegal “Just Cause” Termination Provision Voids All Termination Provisions

Download Télécharger

As readers may recall from our previous Focus Alert, in June 2020, the Ontario Court of Appeal released its decision in Waksdale v. Swegon North America Inc.2020 ONCA 391. The Ontario appellate court found that a termination provision in an employment agreement must be read as a whole and that, since one element of the termination provision violated the Employment Standards Act, 2000 (the “ESA”), the entirety of the termination provision was unenforceable – even though the employer had not sought to rely upon the unenforceable element. On January 14, 2021, the Supreme Court of Canada dismissed the employer’s application for leave to appeal, thereby confirming the Court of Appeal’s finding.

 

Background

Mr. Waksdale was terminated by Swegon North America Inc. without cause after less than one year of employment. Pursuant to the “termination without cause” provision in Mr. Waksdale’s employment agreement, the employer provided him with two weeks’ salary.

The employee sued the employer for wrongful dismissal, seeking more generous common law reasonable notice damages. He argued that the termination provisions of his employment agreement were void because they impermissibly contracted out of the minimum standards of the ESA. The employer conceded that the just cause termination provision provided a lesser benefit than the ESA and was therefore void, but argued that the without cause termination provision, which was contained in a separate paragraph of the employment agreement, was valid and that, since the employer was not alleging just cause for termination, it could rely on the without cause provision alone.

On Mr. Waksdale’s motion for summary judgement, the motion judge considered whether the illegality of the just cause provision also rendered the without cause provision unenforceable. The motion judge dismissed the employee’s motion, concluding that the without cause provision was a stand-alone, enforceable provision, separate from the illegal just cause provision, on which the employer had properly relied.

 

Court of Appeal Decision

On appeal by the employee, the Court of Appeal overturned the motion’s judge decision. The Court found that an employment agreement must be interpreted as a whole, and not on a piecemeal basis. The Court thus concluded that the following considerations will not be relevant to its analysis of the enforceability of a termination provision:

  1. Whether termination provisions are found in one place within an employment agreement or are separated into distinct articles or provisions; and
  2. Whether the employer intends to rely upon the provision or element thereof that is potentially void.

Accordingly, in Mr. Waksdale’s case, the Court found that the termination provisions in the employment agreement, as a whole, violated the ESA and were void, notwithstanding that the employer did not attempt to rely upon the offending termination for cause provision, and notwithstanding that that provision was separate from the without cause provision of the agreement. The Court of Appeal went on to find that the severability clause in the employment agreement could not operate to sever the illegal portion of the termination provisions and thus render the remainder enforceable, as a severability provision cannot have any effect on a contractual provision that has been made void by legislation (here, the ESA).

The Court of Appeal remitted the matter back to the motion judge for determination of the quantum of damages.

 

Supreme Court of Canada Decision

The Supreme Court dismissed the employer’s application for leave to appeal.

 

In Our View

Accordingly, following the Supreme Court’s decision, the Court of Appeal’s decision in Waksdale v. Swegon North America Inc. remains good law, and appears to stand for the proposition that an otherwise legal without cause termination provision can be rendered unenforceable by an illegal just cause termination clause (and will not be saved by a severability clause).

As a result, now more than ever before, employers are advised to undertake periodic reviews of their employment agreements, in order to ensure that any and all provisions that touch on termination are in line with the minimum requirements of the ESA, and are otherwise valid and enforceable. In the event that they are not, the common law presumption of “reasonable notice” will govern, and will serve to provide employees with a much more generous entitlement than the statutory minimums outlined in the ESA. Given the importance of an enforceable termination provision, and the costly risks an employer faces when the wording of an employment agreement is found to be insufficient, we recommend that employers seek legal advice regarding the enforceability of their existing contracts, as well as any newly drafted agreements.

For assistance in reviewing your employment agreements to best ensure enforceability in light of recent case law developments, please contact Colleen Dunlop at 613-940-2734Mélissa Lacroix at 613-940-2741 or Kecia Podetz at 613-940-2752.