Canadian Employment Law Today

Canadian HR Reporter, 2020 4 Employment agreements: The whole is greater than the parts Ontario Court of Appeal rules termination provisions are only enforceable if all of their clauses are legal under employment standards legislation IF ANY TERMINATION provision in an em- ployment agreement is contrary to the re- quirements of employment standards legis- lation, then all termination provisions in the contract will be considered unenforceable — regardless of the existence of a severabil- ity clause, the Ontario Court of Appeal has ruled. As a result, any severability clause can- not be utilized to sever the offending portion of the termination provisions. In Waksdale v. Swegon North America Inc., the employee, Benjamin Waksdale, began his employment as director of sales with Swegon North America, a manufacturer of indoor climate control systems in Markham, Ont., at approximately $200,000 per year. Swegon terminated Waksdale without cause eight months later and paid two weeks' pay in lieu of notice. Waksdale sued for wrongful dis- missal, arguing that he had not been provided reasonable notice of dismissal. He claimed six months' pay in lieu of notice at common law and moved for summary judgment. Swegon defended on the basis of a termination clause restricting the employee's entitlement. The employment contract contained a "ter- mination for cause" provision, which Swegon conceded breached the Ontario Employment Standards Act, 2000 (ESA), and a "termina- tion of employment with notice" provision, which Waksdale acknowledged complied with the minimum requirements of the ESA. The "with notice" provision provided: "You agree that in the event that your em- ployment is terminated without cause, you shall receive one week notice or pay in lieu of such notice in addition to the minimum notice or pay in lieu of such notice and statu- tory severance pay as may be required under the Employment Standards Act 2000 as amended... The terms of this section shall con- tinue to apply notwithstanding any changes hereafter to the terms of your employment, in- cluding, but not limited to, your job title, du- ties and responsibilities, reporting structure, responsibilities, compensation or benefits." The employment contract also contained the following severability clause: "You agree that if any covenant, term, condition or pro- vision of this letter outlining the offer of em- ployment with the company is found to be invalid, illegal or incapable of being enforced by a rule of law or public policy, all remain- ing covenants, terms conditions and provi- sions shall be considered severable and shall remain in full force and effect." Waksdale argued that the defective "for cause" provision rendered the entire employ- ment agreement, or at least both of its termi- nation provisions, void and unenforceable. His position was based on prior precedent, where the Ontario Court of Appeal had estab- lished that if a termination clause contracted out of an employment standards and, there- fore, was void, any severability clause had nothing to which it could apply. The employer argued that it could rely on the "with notice" provision because it was valid and because the employer was not alleg- ing cause. Decision of the Ontario Superior Court of Justice The judge on the summary judgment motion concluded that the "with notice" clause was a stand-alone, unambiguous and enforce- able clause. He stated further that there was no need to sever anything because the invalid "for cause" provision did not apply in this case and only the valid "with notice" clause was in effect in the circumstances. "The ['with notice' clause] is unambiguous, enforceable, and stands apart from the ['for cause' clause]," the trial court said. "Indeed, the ['for cause' clause] itself specifically states that it applies only 'if the company terminates your employment pursuant to this section…'" The court dismissed the employee's motion and action. Decision of the Court of Appeal The Ontario Court of Appeal disagreed with the motion judge and concluded that the "with notice" clause was unenforceable be- cause it violated the ESA. The court set aside the motion judge's order, allowed the appeal and ordered the matter remitted to the mo- tion judge to determine the quantum of the employee's damages. The court relied on its earlier summary of the law regarding the interpretation of ter- mination clauses in employment contracts in Wood v. Fred Deeley Imports Ltd. and em- phasized that the following points were "par- ticularly apt" for purposes of the appeal: Because the ESA is remedial legislation that is intended to protect the interests of employees, courts should favour an interpre- tation of the statute that encourages employ- ers to comply with the statute's minimum requirements and extends its protections to as many employees as possible. Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. The consequence for non-compliance should be more than an order to comply, as without a greater consequence, employers would have little or no incentive to draft lawful termina- tion clauses at the beginning of the employ- ment relationship. The enforceability of a termination clause must be determined at the time the employ- ment agreement was executed, based on whether its wording contravenes the ESA. If an employer complies with its obligations under the ESA on termination, its actions should not have the effect of saving a termi- nation clause that violates the ESA. Noting that there was no question that the employer would not be permitted to rely on the "with notice" clause, the court framed the issue as follows: Should the "for cause" and the "with notice" provisions be considered CASE IN POINT: EMPLOYMENT CONTRACTS On June 17, 2020, the Ontario Court of Appeal rendered a decision pertaining to the enforceability of termination provisions in employment contracts. The court took the position that the proper method for determining whether a termination clause in an employment agreement is enforceable is to analyze the agreement as a whole rather than on a piecemeal basis. This decision is highly significant for employers in Ontario and its significance may extend to employers throughout Canada. BACKGROUND Without significant consequences for ESA violations, employers would have little incentive to draft lawful termination clauses. BY RHONDA LEVY AND GEORGE VASSOS

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