I would never underestimate the ability of a lawyer to make a new, creative argument nor question a judge’s ability to distinguish another case to avoid following another case.
But….a June 17, 2020 Ontario Court of Appeal decision will challenge lawyers’ creativity and judges’ ingenuity.
Almost all employers require new employees to sign an employment contract. And almost all employment contracts have a termination clause. And most of the termination clauses have a provision which states that the employer has the right to terminate an employee for just cause without notice. This case suggests most of these termination clauses are not enforceable.
This decision could therefore result in hundreds of thousands of termination clauses being challenged.
In this case, Mr. Waksdale was terminated without cause after about eight (8) months of employment.
Both parties agreed that the “without cause” termination clause in his employment contract was enforceable.
Both parties also agreed the “with cause” termination clause was not enforceable because it did not comply with Ontario’s Employment Standards Act (ESA) in that some of the agreed upon misconduct that was deemed to be just cause did not amount to being “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer“ which is required to avoid paying termination pay under the ESA. For example, grounds for immediate termination without notice included: “documented warnings with respect to the performance of your duties that the Company considers to be unsatisfactory.”
The issue – Does the entire termination clause need to be legally enforceable?
By way of a summary judgement motion, the employer asked the court to enforce the without cause termination clause, which provided Mr. Waksdale with two (2) weeks termination pay.
Mr. Waksdale claimed that because the “with cause” termination clause was not legally enforceable, the entire termination clause was not enforceable such that he was entitled to common law “reasonable” notice of termination.
Trial decision vs. Court of Appeal decision – Two ships passing in the night
The trial decision – Employer win
“It (i.e the without cause termination clause) is a stand-alone clause, and is enforceable without reference to the Termination with Cause clause.”…”The Termination of Employment with Notice clause is unambiguous, enforceable, and stands apart from the Termination for Cause clause.”
The Court of Appeal decision – Employee win
“An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. Recognizing the power imbalance between employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESA rights. While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal. In conducting this analysis, it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked. Here the motion judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.”
Implications of this case
If the employer in this case does not appeal this decision to the Supreme Court of Canada then I have no doubt that another employer will do so. Until this issue is addressed by the highest court in the land I expect a flood of litigation.
In the meantime, employers should have their employment lawyers update their termination clause so that it complies with this decision.
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