Recent Court Decisions Create And Perpetuate Uncertainty In Ontario Employment Law

• Published date: 07 August 2020
• Subject Matter: Employment and HR, Real Estate and Construction, Contract of Employment, Unfair/ Wrongful Dismissal, Employment Litigation/ Tribunals, Construction & Planning
• Law Firm: Siskinds LLP
• Author: Mr Liam Ledgerwood

As COVID-19 seemed to put the world on "hold" for some time in 2020, Ontario courts were still busy at work releasing decisions with significant implications for employers. While we generally expect court decisions to resolve uncertainties in the law, I want to highlight three recent decisions which increase the legal uncertainties facing Ontario employers.

Waksdale v Swegon - a troubling decision with unclear implications

On June 17, 2020, the Ontario Court of Appeal dropped a potential bombshell in Waksdale v Swegon North America Inc., 2020 ONCA 391. This decision stands for the proposition that, if any part of the termination provision in an employment contract is unenforceable (such as the "for cause" clause), the entire termination provision is unenforceable and the employee will be awarded common law reasonable notice of termination.

Waksdale was an appeal from a summary judgment decision. At the motion for summary judgment, the employer admitted that its "just cause" termination clause violated the Employment Standards Act, 2000 (the "ESA") (frustratingly, because of this admission, we don't know what the clause said). However, the employer argued that the illegality of the "just cause" clause was irrelevant to the enforceability of the "without cause" clause, given that they were separate clauses and that the plaintiff was terminated without cause therefore not in reliance on the illegal "for cause" clause.

The Court of Appeal disagreed [my emphasis]:

¹⁰ We do not give effect to [the employer's] submission. 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. Recognizing the power imbalance between 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. 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 judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.

¹¹ Further, it is of no moment that the respondent ultimately did not rely on the Termination for Cause provision. The court is obliged to determine the enforceability of the termination provisions as at the time the agreement was executed; non-reliance on the illegal provision is irrelevant.

In other words - it doesn't matter how the parties structure the employment contract, nor does it matter how such structure may reflect the parties' intentions. The court will look at all "termination provisions" monolithically, even if doing so is inconsistent with the contractual structure chosen by the parties.

This case could lead to a new wave of employment litigation for one simple reason: most employment contracts in Ontario include a "just cause" termination clause, many of which arguably violate the ESA. "Just cause" is a common law concept, not a concept in the ESA. In fact, the ESA does not allow "just cause" terminations without notice or pay in lieu. The ESA only allows terminations without notice/pay in lieu or severance pay if the employee is guilty of "wilful misconduct, disobedience or wilful neglect of duty which is not trivial and which has not been condoned by the employer" (I'll call this the "ESA Standard").

The ESA Standard arguably sets a higher bar than the common law concept of "just cause". As such, if an employment contract states that the employee may be dismissed without notice or pay in lieu for just cause without otherwise qualifying that statement with reference to ESA minimum entitlements the employee may have, then the clause is - so the argument goes - an...