Courts Will Not Sever Defective Termination Provisions

"It is an error in law to merely void the offending portion and leave the rest of the termination clause to be enforced."

North v Metaswitch Networks Corporation, 2017 ONCA 790 [Metaswitch] is the latest in a series of employee-friendly appellate level decisions where a contractual termination provision is not enforced. The Ontario Court of Appeal followed its previous decision in Wood v Fred Deeley Imports Ltd., 2017 ONCA 158 [Fred Deeley] to hold that a termination provision is void if any aspect of it contravenes the Employment Standards Act, 2000 (ESA). The Court rejected the employer's argument that a severability provision could remove a non-compliant part of the termination provision and, by preserving the remainder, limit the employee's entitlements to the minimum amounts under the ESA.

Application Decision

After being terminated without cause, the employee alleged wrongful dismissal. The employee's wages were comprised of both salary and commissions. Under the employment agreement, commissions were expressly excluded from the employee's entitlements upon termination.

The employee argued that the termination provision effectively reduced his wages (as defined in the ESA) during the notice period. For this reason, it contravened the ESA. In response, the employer argued that, if the termination provision was illegal for excluding commissions, a severability provision in the contract kept the other, ESA-compliant parts in force.

The application judge held that the severability provision could remove the unenforceable part of the termination provision. This left the rest of the termination provision intact and revived its enforceability (i.e., rebutting the common law notice period and limiting the employee to the minimum amounts under the ESA).

Appeal Decision

A unanimous Court of Appeal overturned the application judge's decision. The Court noted that employment contracts are not ordinary commercial agreements. As such, they require special interpretive considerations.

Citing its earlier decision in Fred Deeley, the Court recognized that termination provision enforceability has three components: (i) the wording of the provision; (ii) compliance with the ESA; and, (iii) jurisprudence on interpreting employment agreements. Other considerations may include: the inequality of bargaining power between employee and employer, the employee's unfamiliarity with the ESA, extending the scope of the ESA, deterring the employer from its...