A Whirlwind Review: Appellate Employment Cases 2019 - 2020

• Published date: 16 February 2021
• Subject Matter: Employment and HR, Cannabis & Hemp, Contract of Employment, Unfair/ Wrongful Dismissal, Employee Benefits & Compensation
• Law Firm: Gowling WLG
• Author: Ms P.A. Neena Gupta

As litigators are no doubt aware, the impact of COVID-19 made it extremely difficult to get into a courtroom for most of 2020. Appellate courts throughout Canada were no exception, and therefore the volume of decisions stemming from these courts have been somewhat reduced compared with previous years. That being said, a number of significant decisions nonetheless emerged from appellate courts through 2020. The following review highlights the decisions that have emphasized or even shifted key principles of employment law during the past year, and may signal what can be expected for 2021.

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1. Termination clauses are getting harder to enforce
2. An employee can unilaterally rescind notice of retirement sometimes
3. Clarification of appropriate notice period for employee terminated subsequent to an asset purchase
4. Questions arise about unilateral changes to the terms of employment
5. Clarity on the definition of "dependent contractor"
6. British Columbia's Court of Appeal considers consideration
7. Newfoundland's Court of Appeal weighs in on accommodation of cannabis use
8. Corporate context is unhelpful in avoiding common-law obligations based on full service of selling shareholder/principal
9. SCC confirms that employee entitled to damages for loss of LTIP during reasonable notice period.
10. Conclusion

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1. Termination clauses are getting harder to enforce

a. An unenforceable "for cause" provision in an employment agreement will invalidate an otherwise enforceable "without cause" provision.

Wazksdale v. Swegon North America Inc., 2020 ONCA 391 ("Waksdale")

The Court of Appeal's most noteworthy case of the year was not welcome news to Ontario employers, especially in light of the potential need for many to reduce workforce size in a mid- or post-COVID world.

Waksdale involved a short service employee who was terminated on a without cause basis and provided the entitlements specified under the "without cause" termination provision in his employment agreement (i.e. two (2) weeks' severance). The employment agreement in question also contained a "cause" termination provision. Waksdale sued for wrongful dismissal and sought common law notice of termination.

Although he acknowledged the "without cause" provision in his employment agreement was lawful in and of itself, Waksdale argued that the "cause" provision was unenforceable for violating the Employment Standards Act, 2000 ("ESA"). Moreover, he argued that the unenforceability of the "cause" provision necessarily rendered the "without cause" provision unenforceable as well.

The employer conceded that the "cause" provision was void for violating the ESA, but stated that this was irrelevant since Waksdale was terminated on a without cause basis. Notwithstanding the above, the employer argued that the "cause" provision was a stand-alone clause and was not relevant to any analysis of the "without cause" provision since there was no contemplation of cause in Waksdale's termination. The employer further argued that, in the event that the "cause" provision could impact the enforceability of the "without cause" provision, the agreement's severability clause would act to sever the two provisions and thereby save the "without cause" provision.

The Superior Court agreed with the employer, finding that the unenforceability of the "cause" provision did not impact the enforceability of the "without cause" provision. As such, the "without cause" provision served to rebut the employee's common law reasonable notice.

In a surprising result, however, the Court of Appeal rejected the lower court's analysis and overturned its ruling, awarding Waksdale reasonable notice of termination. The Court of Appeal held that:

1. it is irrelevant whether termination provisions "are found in one place in an agreement or separated, or whether the provisions are by their terms otherwise linked", and that these provisions "must be interpreted as a whole and not on a piecemeal basis" when determining whether they are void for breaching the ESA;¹
2. it does not matter if an employer does not rely on a void "cause" provision at termination and provides all statutory entitlements required for a without cause termination; rather, the enforceability of termination provisions needs to be assessed at the time the agreement was formed;² and
3. the severability clause was of no help to the employer as a "severability clause cannot have any effect on clauses of a contract that have been made void by statute," and since the termination provisions must be read together, the "severability clause cannot apply to sever the offending portion of the termination provisions."³

Historically, employers have paid limited attention to the enforceability of "cause" termination provisions, especially given how infrequently they are relied upon. Post-Waksdale, this reality will change drastically, as numerous "without cause" termination provisions will now be significantly threatened if they exist in the same agreement as "cause" provisions that are arguably unenforceable.

This raises a challenging element of the Waksdale decision - the parties at trial conceded the unenforceability of the "cause" provision, but the actual language of the void provision is not detailed in either court decision. The "cause" termination provision, however, included a lengthy list of grounds that would amount to a "cause" termination, most of which would not have risen to the level of cause as defined under either employment standards or the common law. This makes it more difficult for employers to assess the risk that their own employment agreements may face as a result of questionable "cause" provisions.

In addition to the above considerations, Waksdale also raises the question as to what other clauses in an employment agreement might serve to invalidate "without cause" termination provisions. It is expected that "creative" plaintiff-side counsel will argue for an expansion of the Waksdale principles to include other potentially faulty provisions in an attempt increase employee severance entitlements.

Application for leave to appeal to the Supreme Court of Canada was filed by the employer; however, the Court dismissed the application on January 14, 2021.

b. Even language that provides for "greater of" ESA or formula can be challenged.

Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679

Andros worked for Colliers Macaulay Nicolls for approximately 8 years (2001 to 2004; 2009 to 2017), ending up as Managing Director. His employment was governed by an employment agreement, which purported to limit his rights on termination.

The termination provision is found within clause four of the employment agreement:

4. Term of Employment

The company may terminate the employment of the Managing Director by providing the Managing Director the greater of the Managing Director's entitlement pursuant to the Ontario Employment Standards Act or , at the Company's sole discretion, either of the following:

a. Two (2) months working notice, in which case the Managing Director will continue to perform all of his duties and his compensation and benefits will remain unchanged during the working notice period.

b. Payment in lieu of notice in the amount equivalent of two (2) months Base Salary.⁴

The Court of Appeal found that 4(a) and 4(b) contracted out of the ESA.⁵ The Court of Appeal then found that it was impossible to simply void the portion of the termination clause that was void under the ESA. Therefore, the entire clause was invalid. The Court of Appeal rejected the argument that the "greater of" represented a form of "failsafe" agreement that was equivalent to the ESA-saving clause found in its earlier decision in IBM v. Amberber. ⁶

The Andros case also re-affirms the general proposition that bonuses form an integral part of an employee's compensation package. Language such as "in good standing" or "actively employed" is ineffective to waive the right of an employee to a bonus. Even if the bonus is otherwise payable well after the expiry of the notice period, the court will award compensation in lieu of the bonus, both for the portion of time worked and the notice period.⁷

2. An employee can unilaterally rescind notice of retirement sometimes

English v. Manulife Financial Corporation, 2019 ONCA 612 ("English")

This case involved an employee, English, in her early 60s with approximately 9 years of service. In September 2016, her employer announced that it would be implementing a new computer system for employee use. At the time, English was planning to retire from employment at the end of 2017.

Upon hearing about the new computer system, English considered taking early retirement instead of training on a new system at that point of her career. Independently and without a hint of pressure from the employer, she made the decision to retire at the end of 2016. She met with her supervisor to discuss this decision and provided a letter to that effect. The supervisor was not convinced that English was entirely sure about her decision and thereby assured her that she could change her mind.

A few weeks later, the employer announced it would not be implementing the new computer system. Accordingly, English informed her supervisor that she wanted to rescind her retirement notice. The employer, however, refused to accept this rescission as it had already made plans to transfer English's responsibilities to other employee and eliminate her position entirely after her retirement.

English brought a wrongful dismissal claim, arguing that she should have been permitted to rescind her retirement notice. The Superior Court dismissed her claim, finding that she had tendered a clear and unequivocal resignation, and that she could not resile from it unilaterally. The resignation, the lower court noted, created a binding contract between the parties. ⁸

The Court of Appeal overturned this decision and found in favour of English, holding that the motion judge had erred in concluding that English's retirement notice...