Back to the drawing board: Post-Waksdale decision may have voided your existing employment termination provisions
By: Amanda Pizzardi
The Ontario Court of Appeal’s (somewhat controversial) decision in Waksdale v Swegon North America Inc. has recently been followed by the Ontario Superior Court of Justice in Sewell v Provincial Fruit Co. Limited. Similar to Waksdale, an illegal just-cause termination provision in this case had the effect of rendering the without-cause provision unenforceable.
The Decision
The plaintiff was employed by the defendant for less than one year at which point he was terminated without cause. The defendant provided him with two weeks’ salary and benefits consistent with the terms of the employment contract and his minimum entitlements under the Employment Standards Act, 2000 (“ESA”). The plaintiff sued for wrongful dismissal and brought a summary judgment motion in which he sought, amongst other things, damages in lieu of eight months of notice.
The Court was tasked with determining whether the termination provision in the employment contract was enforceable. It read as follows:
b) Termination by the Company for Just Cause
The Company is entitled to terminate your employment at any time and without any notice or any further compensation for just cause and the Company will not have any further obligations to you whether at contract, under statute, at common law or otherwise.
c) Termination by the Company without Just Cause
(A) The Company will be entitled to terminate your employment at any time without just cause by providing you with the following:
[…]
(ii) a payment, or at the Company’s sole option, notice or combination of notice and pay in lieu of such notice representing termination pay and, if applicable, severance pay, as may be required under the Employment Standards Act, 2000, as amended from time to time (the “Separation Period”);
[…]
It is agreed that upon compliance with the above provisions, the Company will be release from any and all obligations to you, whether statutory, under contract, at common law or otherwise.
The Court held that the termination clause violated the minimum standards set out in the ESA for two reasons. First, it found that the without-cause provision combined the plaintiff’s notice and severance pay entitlements which violated the ESA requirement to pay both notice and severance. Second, (and most note-worthy) it applied Waksdale in finding that the just-cause termination clause was illegal, which had the effect of setting aside the entire provision:
[19] Second, applying Waksdale, I find that the “Termination for Just Cause” provision of the contract was illegal insofar as it contracted around the ESA requirement to provide notice except in cases where an employee engaged in “willful misconduct.” Based on the Court of Appeal’s reasoning, I must read the contract as a whole and set it aside if one or more of the terms are illegal, even if the offending term is not at issue in the instant case.
Based on this analysis, the entirety of the termination provision was held to be unenforceable and the plaintiff was entitled to common law reasonable notice. The court assessed the reasonable notice period at four months.
Key Takeaways
Sewell is the first decision to apply Waksdale. It confirms that the employment contract must be read as a whole, and if a portion of a termination clause is illegal it will void the entire provision. Prior to this decision, it was common for employers (and their counsel) to distinguish the unique facts in Waksdale from their own termination clauses when maintaining that they were enforceable. Following Sewell, that argument will be harder to make.
As it stands now, Sewell has the potential to void a large percentage of termination provisions in existing employment contracts. Employers should certainly review their contracts, and employees should seek advice if they are presented with a new contract, especially one with an “updated” termination provision, in the near future.