A comment on Waksdale v. Swegon North America Inc., 2020 ONCA 391

Some legal scholars have described the common law as a thing of “beauty” because it can adapt to changing circumstances and although that is true, in practical terms, that adaptability can often result in uncertainty. And so it is with the case discussed below.

Last summer, the Ontario Court of Appeal (the “OCA”), in the case cited above, once again, considered the enforceability of a termination clause in an employment agreement.

The Facts

The employment agreement in that case contained typical provisions dealing with the rights and obligations of the employer and employee if there was a termination for either just cause or without cause. The agreement also contained a typical term stating that if a provision in the agreement was found to be unenforceable, the remaining terms of the contract would not be affected.

Both the employer and employee agreed that the provisions in the agreement relating to termination for just cause violated the Employment Standards Act, 2000 (the “ESA”). Unfortunately, neither the reasons of the OCA, nor the court below, actually quoted the wording of the just cause termination clause. The without cause termination provisions, however, did not violate the ESA and limited the employee’s entitlement if he was terminated without cause, which he was.

The Issues

The two issues in the case were:

1. whether or not the fact that the just cause terminations provisions which violated the ESA invalidated the entire termination clause; and
2. could the provisions relating to termination without cause be saved by the term in the agreement which stated that an invalid or illegal term did not affect the remaining terms.

The Result

The employee had argued that the entire termination clause was invalid and could not be saved. As such, he took the position that his damages were not limited by the terms of the agreement. The lower court disagreed with the employee’s arguments. The employee appealed to the OCA and was successful.

The OCA stated that the termination provisions were unenforceable because they violated the ESA and it did not matter that only one of the two termination provisions was contrary to the ESA. The OCA also stated that the termination provisions could not be looked at separately and had to be considered as a whole. It also did not matter that the employer was not relying on the “illegal” provisions at the time of the termination. Furthermore, the “saving” provision of the agreement could not be relied on. Therefore, the employer’s liability was not limited by the terms of the contract and would, in all likelihood, be significantly more.

The employer sought leave to appeal the OCA’s judgment to the Supreme Court of Canada (the “SCC”) Unfortunately, earlier this month, the SCC refused to hear the appeal.

The Implications

In the writer’s view, there are significant difficulties with the OCA’s analysis and conclusion, the details of which will not be discussed at this time. Had the SCC agreed to hear the appeal, it may have resulted in further clarification.

We do not know how future courts will apply this decision and how the law on this issue will develop. The one thing which seems to be clear, however, is that the courts are likely to continue to be influenced by the fact that the employer-employee relationship is an unequal one in which the employer has the greater leverage in terms of bargaining power. Therefore, employment agreements will continue to be interpreted in the manner which is the most favourable to the employee.

For now, this decision stands and we must deal with its implications, some of which are:

1. Since we do not know what the wording of the just cause termination clause was in that case, we do not know exactly why it was considered to be in violation of the ESA. As such, it is impossible to know how such wording compares to the wording in other existing agreements. The concern, therefore, is that there may be many existing agreements in which the enforceability of termination provisions may now in doubt.
2. If existing agreements containing termination provisions which limit the employee’s entitlement on a termination without cause are not enforceable based on this case, then employers could be potentially liable for much more notice than they might otherwise have thought.
3. Employers entering into agreements with new employees should ensure that the terms of such agreements are drafted in such a way as to improve, to the extent possible, the likelihood that such terms will be enforced.
4. Employers should also review existing employment agreements and seek advice with respect to the enforceability of any termination provisions contained in such agreements, as well as, possible options to address any potential concerns.

Jeffrey A.L. Kriwetz

E-mail: jkriwetz@garfinkle.com

Direct Line: 416.869.7618

*Please note: The views expressed in this article are those of the writer and have been provided for information purposes only. Nothing in this article should be relied on as specific legal advice in any particular case. For such advice, please contact the writer directly.