employment contracts

Following the release of the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America Inc. in June 2020, many employers are facing the realization that the termination provisions in their contracts may be unenforceable and in need of amendment, thanks to illegal for cause provisions.

Many employment contracts feature both:

  • A clause that provides for the notice and entitlements an employee will receive if their employment is terminated without legal justification (“without cause”); and
  • A clause prescribing the conduct which will lead to, and/or the consequences of, employment being terminated for “just cause”. These provisions often prescribe substantially fewer, if any, entitlements upon termination and may run afoul of employment standards legislation.

Waksdale held that a without cause provision is unenforceable if the just cause provision that accompanies it, even under a distinct section of the contract, violates the Employment Standards Act, 2000 (the “ESA”). Waksdale was dismissed without cause, with no dispute as to the validity of the without cause provision in his contract. It was also undisputed that the for cause provision, which was not applied, was illegal. The Court stressed that employment contracts must be read as a whole, not considered on a piecemeal basis, and that an employer may benefit from an illegal provision even where it has not been relied on in a specific case. For example, employees may strive to comply with provisions they are unaware are illegal, to the employer’s benefit during their employment. Reading the two termination provisions together in this case, the without cause provision was rendered unenforceable.

Leave to appeal Waksdale to the Supreme Court of Canada was denied last month so, at least for the time being, this rule is here to stay.

The issue is that many employment contracts, including that in Waksdale, fail to distinguish between an employee’s entitlement at common law to reasonable notice of dismissal, and their statutory entitlements to notice and severance pay. Distinct standards of misconduct apply to disentitle employees to these benefits.

The common law requires only that the employee’s behaviour gave rise to a substantial breakdown in the employment relationship. Whereas, the ESA requires that the employee be “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”

For employers, the consequences of an unenforceable termination provision can be serious. Common law notice is then implied, which may provide for far more than an employee’s entitlement under the ESA or their contract. Following Waksdale, some employers – and employers’ counsel – are asking themselves, is it worth including a for-cause provision in your agreements at all?

The answer to this question is far from clear and is one that depends greatly on an employer’s objectives and tolerance for risk.

The pros

A properly worded provision can empower employers to:

  • Set clear expectations for employees and specify conduct which will lead to dismissal, which may include conduct that would generally not amount to just cause at common law;
  • Limit employees’ entitlements in such cases to ESA minimums, saving more generous treatment for employees dismissed without cause; and
  • Save the time and expense of litigating over the standard of just cause that ought to be implied by the common law in particular circumstances.

The big con

The ceaseless efforts of plaintiffs’ counsel, and the ever-developing case law, mean that contractual wording that appears safe today may be unenforceable tomorrow. Without a just cause provision, there is one less clause that may be picked apart to have the whole termination provision thrown out.

One lesson from Waksdale is clear: all termination provisions must be carefully crafted and should be regularly reevaluated in light of new developments.  

Original title of blog post: Does Waksdale Mean Rethinking or Removing For-Cause Provisions?

By Michelle A. Stephenson, Corman Feiner

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