DID YOU KNOW… YOUR EMPLOYMENT CONTRACT MAY NOT BE COMPLETELY ENFORCEABLE IN THE EVENT OF A TERMINATION
On January 14, 2021, the Supreme Court of Canada announced that it has dismissed a request for leave to appeal the recent Ontario Court of Appeal decision in Waksdale v. Swegon North America Inc. (“Waksdale”).
The result is that the Court of Appeal’s decision in Waksdale remains the law in Ontario, in relation to the interpretation of termination provisions in employment contracts, for the foreseeable future.
There is some debate in the legal community about whether the Court of Appeal simply “clarified” the law or fundamentally changed it. The result, however, is the same; a significant number of existing employment contracts (if not the vast majority) may no longer have valid or enforceable termination provisions.
The Waksdale case appears to hold that in order for a “for cause” termination without notice (commonly referred to as “firing” an employee) to be valid, very specific language must be used in the “for cause” termination section of the employment contract. This very specific language has not, prior to the Waksdale case, been commonly used in employment contracts in Ontario. This is obviously a significant concern for employers.
Worse for employers, however, is that the Waksdale case also held that all of the termination provisions of an employment contract are to be interpreted as one, and not as separate sections of a larger contract (the Court ignored the standard severability clause, which is meant to save otherwise valid clauses from being tainted by one invalid clause in a contract). This means that an invalid “for cause” termination provision will invalidate an otherwise valid “without cause” termination provision in the same employment contract. That is exactly what happened in Waksdale.
The impact in the Waksdale case was that an otherwise valid “without cause” termination provision, which would have limited notice of termination to the statutory minimums, was not enforceable, and the employee was entitled to the higher common law notice entitlements.
This decision has the potential, in the right circumstances, to increase a terminated employee’s notice entitlements from eight weeks’ notice or pay in lieu of notice to two years’! This could be absolutely devastating to an employer.
The largest take-away for employers is that, in light of the Waksdale decision, all employment contracts should be reviewed; and where necessary, new employment contracts properly entered into with employees (with the employees receiving proper consideration and independent legal advice prior to executing the same). The assistance of a lawyer with the process is highly recommended.
The second big take-away for employers is that they should always seek legal advice prior to terminating an employee, to ensure that there are no unexpected, and costly, surprises!
The Bottom Line
The recent Court of Appeal decision in Waksdale has potentially rendered the majority of termination provisions in Ontario employment contracts invalid, and all employers are encouraged to take proactive steps to have a lawyer review and (where necessary) revise their employment contracts.
Disclaimer: While every effort has been made to ensure the accuracy of this article as at the date it is published, it is not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer. For specific technical or legal advice on the information provided and related topics, please contact Chinneck Law.
Written By: Todd W. Devitt
August 26, 2021