By: David Morson
Absent “just cause”, an employer is typically required to provide an employee with reasonable notice of termination (or pay in lieu of notice). Reasonable notice is based on multiple factors including, but not limited to, the age of the employee, the employee’s length of service, and the availability of similar employment.
However, the obligation to provide reasonable notice can be displaced. This will be the case where the employment contract includes clear language indicating that some other period of notice will apply on termination. At all times, the specified period of notice must comply with minimum employment standards legislation[i] – if it doesn’t, that portion of the contract will be unenforceable, and the employee will be entitled to common law reasonable notice as described above.
Implications of Waksdale
In Waksdale v. Swegon North America Inc. (Waksdale), the Ontario Court of Appeal ruled that an unenforceable “for cause” termination provision in an employment agreement rendered all of the termination provisions unenforceable (including the “without cause” provision).[ii]
In Waksdale, the employee (Waksdale) sued the employer (Swegon North America Inc.) for wrongful dismissal, arguing that he was entitled to damages because the employer did not provide him with reasonable notice of termination. The employer conceded that the termination “for cause” provision in the contract was void because it violated the Employment Standards Act (ESA). However, it argued that the termination “without cause” provision was valid and, because it was not alleging cause, it was enforceable against the employee.
The Court ultimately sided with the employee. It held that “an employment agreement must be interpreted as a whole and not on a piecemeal basis”.[iii] The Court explained that the “correct analytical approach” is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. Therefore, since the “for cause” termination provision violated the ESA, the “without cause” provision also became unenforceable.
The Court arrived at its decision even though the employment agreement contained a severability clause. It was said to be of no use to the employer because a “severability clause cannot have any effect on clauses of a contract that have been made void by statute” and because the termination provisions were to be analyzed together. As the Court explained, “the severability clause cannot apply to sever the offending portion of the termination provisions”.[iv]
Employers Should Immediately Review Employment Agreements
Given the outcome in Waksdale, employers should immediately review their employment agreements to determine whether they are in compliance with the ESA. In the past, employers have been primarily concerned with ensuring that the termination “without cause” provision is ESA-compliant, but this decision reminds employers to also review “for cause” termination provisions.
In reviewing these employment agreements, it is important to remember that the enforceability of a termination provision in an employment contract must be assessed at the time that the employment agreement was created. Furthermore, it is the wording of the contract alone that determines whether there is an ESA violation. Even if an employer’s actions comply with its ESA obligations on termination, that compliance does not have the effect of saving an otherwise unenforceable provision.
In the event that an employment agreement violates the ESA (or may do so in certain circumstances), the employee should be offered fresh consideration in exchange for entering into a new employment agreement with enforceable termination provisions. Generally speaking, an employer cannot require its employees to sign a new employment contract as a condition of continued employment. Therefore, employers should consider using pay increases, bonuses, promotions, or some other form of incentive in exchange for entering into new employment agreements with enforceable termination provisions.
[i] Employment Standards Act, 2000, SO 2000, c. 41.
[ii] 2020 ONCA 391 [Waksdale].
[iii] Waksdale paragraph 10.
[iv] Waksdale paragraph 14.