Waksdale: Enforceability of Termination Clauses in Ontario

The Waksdale Decision:

In 2020, the Court of Appeal for Ontario released its decision for Waksdale v. Swegon North America Inc., 2020 ONCA 391 (Waksdale).

In Waksdale, the employee was let go with two-weeks pay in lieu of notice. He filed an action for wrongful dismissal. The employee conceded that the employment agreement’s Without Cause termination provision complied with the minimum requirements in the Employment Standards Act, 2000 (ESA). The employee argued that the For Cause termination provision violated the ESA, and that this meant the Without Cause termination provision was unenforceable too, giving way to common-law reasonable notice entitlements.

The Court of Appeal held that, if a termination clause’s Termination For Cause provision is not compliant with the ESA, the entire termination clause, including the Termination Without Cause provision, is unenforceable.

Termination Provisions Should be Read as a Whole:

The Court ruled that employment contracts must be read as a whole, and not on a piecemeal basis.

The Court declined to apply the employment agreement’s severability clause to termination clauses that purport to contract out of the ESA. Because the termination provisions are to be interpreted as a whole, the severability clause cannot apply to sever the offending portion of the termination provisions.

Non-Reliance on the Illegal Termination Provision is Irrelevant:

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 by the employer is irrelevant.

The Court noted that the ESA is remedial legislation intended to protect employees and take into account the power imbalance between employers and employees. Employers may still benefit from an illegal provision not relied upon because employees may adhere to unenforceable provisions to avoid being terminated.

Employers May Owe Common-Law Notice:

This opens the door to common-law reasonable notice of termination, which can be significantly more costly than statutory minimum notice.

Generally speaking, common law notice far exceeds the statutory minimum and ranges between 1 to 24 months’ notice, or compensation in lieu, based on factors such as the employee’s age, length of service, and character of employment.

Leave to Appeal to the SCC Dismissed:

The respondent sought to appeal the decision to the Supreme Court of Canada, but was denied leave. This means that the Supreme Court refused to hear the appeal and the Waksdale decision is currently the law of the land in Ontario with respect to termination clauses.

Blog posts are not legal advice.

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