Trouble with Termination Clauses: Waksdale v Swegon Case Summary
For employees, the Employment Standards Act, 2000 (“ESA”) represents the ‘floor’ or the bare minimum for which employers must provide. Any provision in that contravenes the ESA in an employment contract is generally seen as void and unenforceable. To minimize the risks of the enforceability of their employment contracts being rejected by the Court, employers have historically inserted a severability clause or a portion of the contract which stipulates that the contract will continue to be enforced even if one or more aspects of the contract are void. Some employers even make specific mention to the ESA in order to reduce liability.
Historically, the severability of a contract meant that if there was an unenforceable “for-cause” termination provision in the contract and an employee was terminated on a valid “without-cause” basis, the employee would have had limited options for further recourse beyond receiving notice pay as outlined by the contract. However, the recent decision in Waksdale v Swegon North America Inc., 2020 ONCA 391 has radically altered the enforceability of termination clauses and subsequently how employment contracts must be drafted in order to avoid having their termination clauses invalidated.
Case Facts in Waksdale
Benjamin Waksdale worked as Swegon North America Inc. (“Swegon”)’s Director of Sales from January 8, 2018 to October 18, 2018 – earning an approximate yearly salary of $200,000. The Respondent terminated Appellant on a “without cause” basis and provided him with two weeks’ of pay in lieu of notice.
Mr. Waksdale sued the Swegon for wrongful dismissal on the basis that Swegon did not provide him with adequate notice pay. He argued that the termination clause in the employment contract attempted to contract out of the ESA and should therefore be considered void. Swegon conceded that the “termination for cause” provision was void but argued that since it was not alleging cause, the remainder of the termination provision, and in particular the “without cause” termination clause, was valid and enforceable.
What did the Court Hold?
The court ruled in Mr. Waksdale’s favour and noted that the offending part of the termination provision must be interpreted “as a whole and not on a piecemeal basis.” The Court further clarified that it was irrelevant that Swegon did not intend to rely on the illegal provision of the contract, as the termination provisions read as a whole (both ESA contravening and non-contravening aspects) were ultimately prejudicial to Mr. Waksdale.
The Court provided an example of an employer benefiting from an illegal termination clause where an employee that is unfamiliar with their ESA entitlements and signs such a contract may incorrectly believe they must behave in accordance with the unenforceable provisions to avoid termination. Even if the remainder of complies with the ESA, the combined effect of contravening and non-contravening aspects of the termination provision may still lead to unjust benefit for the employer and at the expense of the employee.
Ruling in Mr. Waksdale’s favour, the Court calculated Mr. Waksdale’s notice period entitlements based off common-law, which were substantially higher compensation compared to the ESA minimum amounts.
What does this mean for Employees?
Waksdale represents a narrowing of the wide gap of power between employees and employers. Employees now have an additional tool to combat provisions in their employment contracts that are vague, unconscionable or otherwise unenforceable. We continue to maintain that is highly advisable for any employee to read your employment contract carefully. Seek a qualified employment lawyer to explain your rights and help aspects of your employment contract. Regarding termination provisions, if there are any aspects that may be interpreted to contravene the ESA, it may be found that the employee is not be bound by the termination clause and therefore entitled to the more generous common law notice.
Not sure if the termination clause in your contract applies to you? We here at Soni Law Firm are experienced employment lawyers who can help you understand your employment contract and protect your rights. If you feel that you have been dismissed as a result of an unclear or unconscionable termination clause, don’t hesitate to book your free consultation with Soni Law Firm.
What does this mean for Employers?
As per Waksdale, a severability clause in your employment contract is likely no longer enough to save a termination clause that breaches the ESA. Any aspect of a termination clause that contravenes the ESA may be interpreted by the Court to unjustly enrich an employer and may subsequently be seen unfavorably in cases of carelessly worded or vague employment contracts.
Employers should word their contracts in a way that cannot be interpreted (or misinterpreted) to contravene the ESA. At the very least, employers should not impose overly onerous just cause termination provisions in their employment contracts which go beyond the permitted grounds under the ESA, which are “guilty of willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer.” The ESA establishes an particularly onus standard for justifying a “with cause” termination. While it may be tempting for an employer to add additional provisions to their employment contract that they feel will entitle them to terminate an employee without notice, they cannot contract out of the ESA standard regarding their obligations for termination notice.
The Future of Employment Contract
This raises the question: is the termination clause also unenforceable if there is a breach of the ESA by a non-termination related provision such as vacation pay entitlements or overtime pay terms?
We expect to see lawyers and the Court rely and cite the Waksdale case in these and other similar but different scenarios. However, notwithstanding how the case will be applied, we highly recommend employers and employees to seek a qualified employment lawyer to review or draft their employment contract. While it may be easier for employers to fall into the familiarized routine of handing new prospective employees an employment contract drafted years prior, employment law can and will continue to change. Now is the time to take extra precautions to ensure that all aspects of employment contracts are up-to-date and in line with recent case law.