Another Brick In The Wall (Removed) (Part 29): Court Of Appeal Continues To Chip Away At ESA Termination Provisions

• Published date: 26 June 2020
• Subject Matter: Employment and HR, Unfair/ Wrongful Dismissal, Employee Rights/ Labour Relations
• Law Firm: McMillan LLP
• Author: Mr Patrick Groom and Dave McKechnie

Termination provisions in most employment agreements provide for three distinct scenarios: resignation, termination for cause, and termination without cause. A well-draft termination provision protects employers from a debate over the common law notice period when dismissing an employee without cause. Up until recently, the prevailing view in Ontario was that as long as the provisions were separated, illegality in one did not render the other clauses unenforceable.

However, the recent Ontario Court of Appeal ("the Court") decision of Waksdale v. Swegon North America¹ has changed the prevailing view by holding that if one clause is not compliant with the Employment Standards Act, 2000, (the "ESA"), the other clauses are unenforceable.

Background

Mr. Waksdale's employment agreement contained a "Termination for Cause" and a "Termination without Cause" provisions. The Termination without Cause provision limited Mr. Waksdale to his minimum entitlements under the ESA.

Notwithstanding the fact that Mr. Waksdale was terminated without cause, Mr. Waksdale took the position that the Termination for Cause provision breached the ESA and the illegality of the Termination for Cause provision rendered the entire Agreement - or, at the very least, the Termination without Cause provision in the employment agreement - void and unenforceable.

The employer conceded that the Termination for Cause provision was unenforceable as it provided something less than the ESA, but took the position that the unenforceability of the Termination for Cause provision was irrelevant as Mr. Waksdale was terminated without cause.

The trial court judge sided with the employer and dismissed Mr. Waksdale's wrongful dismissal action. Mr. Waksdale appealed to the Court.

Decision

The Court overturned the trial judge's decision and held that the two Termination provisions must be read together:

[10] . 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. . While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal. In conducting this analysis, 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...