What Will Follow In The Wake Of Waksdale? A Case Comment For Legal, Management And Human Resources Professionals

• Published date: 24 September 2020
• Subject Matter: Employment and HR, Contract of Employment, Unfair/ Wrongful Dismissal, Employee Rights/ Labour Relations
• Law Firm: Norton Rose Fulbright Canada LLP
• Author: Mr Kevin MacNeill

The Court of Appeal for Ontario released its decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391 (CanLII) on June 17, 2020. It voided a contractual term limiting an employee's termination pay. The employee thus won a chance to claim higher damages than he and his employer had originally bargained.

Legal commentators have since characterized Waksdale as "monumental." They claim that it has "dramatically altered the landscape" and predict that "the impact of this case will be felt for years to come." One commentator said that "all Ontario employers need new employment contracts." And one firm has gone so far as to state that:

As a result of Waksdale, thousands of companies in Ontario may no longer be able to rely upon termination clauses in their current employment agreements to limit the amount of severance pay owed to terminated employees.

This case comment respectfully challenges such conclusions. Of course, any Court of Appeal decision must be taken seriously and treated with respect. But, as explained below, Waksdale does not develop new law. Rather, it applies well-settled principles to a unique set of facts. Further, Waksdale's dicta do not reasonably support the view that, going forward, thousands of Ontario employment contracts are void, or even at risk of being voided. Waksdale is thus not as revolutionary as some have suggested.

Background

In Waksdale the employer admitted, without explanation, that the contract's "just cause" termination provision violated the Employment Standards Act, 2000 ("ESA"). In turn, the Court of Appeal found that the admitted taint of this provision required voiding a companion clause that stipulated the employee's "without just cause" termination pay entitlement. The issue of the just cause provision's illegality was not argued or judicially decided.

Despite this, Waksdale has led some to make a logical leap. Their major premise is that all just cause provisions are void as being contrary to the ESA, even if Waksdale did not make such a finding. The minor premise is the reasoning in Waksdale that an illegal just cause provision will void an otherwise valid without just cause provision. And the conclusion drawn is that there is now increased risk of voided termination provisions across Ontario. However, this syllogism is flawed because the major premise itself is not a settled issue.

At the core of the major premise in the "Waksdalian thesis" is the idea that common law just cause is easier to prove than its statutory equivalent. Under the ESA, employees do not get termination or severance pay when they are "guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer" (the "ESA standard").¹ Thus, the argument goes, the ESA standard requires employee intent, which both distinguishes it from, and makes it more onerous than, the common law standard. On this thinking, just cause provisions must be void because they deny employees statutory termination pay on a lower standard than the ESA requires.

This case comment examines this thesis and argues that its theoretical underpinnings are not sound. In particular, the intent requirement under the ESA standard does not by that fact alone make it a more onerous standard than common law just cause. Further, common law just cause cannot be established without proof of employee intent to commit a workplace infraction, despite passing assertions to the contrary in some cases. If these contentions are valid, then the decades-old drafting practice of including broadly worded just cause provisions in employment contracts should not be lightly abandoned by employer advocates. Further, the courts should not accept that just cause provisions necessarily violate the ESA or invalidate companion provisions dealing with termination entitlements in cases of dismissal without just cause.

Waksdale was a "corrective appeal," not a "law-making appeal"

The plaintiff in Waksdale brought an action for wrongful dismissal and then moved for summary judgment. He argued that he was entitled to damages because the employer had not given him reasonable notice of dismissal at common law.

The motions judge dismissed the plaintiff's motion and action. He found that the plaintiff's termination entitlements had been legally limited to those set out in the ESA under a contractual clause addressing "termination of employment with notice" (i.e. without just cause). Such without just cause termination clauses are widespread in Ontario, and it is settled that they are legal and enforceable so long as they evince a clear intention to displace an employee's common law rights and do not seek to give the employee less than his or her statutory termination entitlements.²

The motions judge also considered whether the legal interplay between the above clause and another clause in the contract dealing with "termination for cause" (i.e. just cause) would impact on the conclusion reached. It is a common and longstanding drafting practice in Ontario to include a termination for cause provision in written employment contracts. The wording of such clauses varies, but generally they state that an employee dismissed for just cause - the parameters of which are defined in case law - is not entitled to termination pay. In Waksdale, there was such a provision and the employer admitted that it was not enforceable because it did not respect the termination rules under the ESA. The reasons for this admission are unclear. The plaintiff argued that the admitted illegality of the termination for cause provision tainted the termination of employment with notice provision such that it, too, was unenforceable. The motions judge rejected this argument, accepting that the two clauses were distinct. Thus, the invalidity of the former did not impact on the validity of the latter.

The Court of Appeal found that this was a reversible error. After noting that there was no issue that the termination for cause provision breached the ESA, the Court of Appeal wrote, at paragraph 10 of its decision:

...An employment...