Earlier this month, the Supreme Court of Canada denied leave to appeal the Ontario Court of Appeal decision in Swegon North America Inc. v. Waksdale, 2020 ONCA 391 (“Waksdale”). Accordingly, Waksdale remains binding authority in Ontario.
The Waksdale decision marks a dramatic shift in the court’s approach to employment contracts. This is a positive result for employees seeking to set aside an unfavourable termination clause in an employment contract.
Generally, the courts have scrutinized termination clauses in employment contracts that severely limit the employee’s severance entitlements on termination. However, the Waksdale decision imposed a new high watermark for employers.
In Waksdale, the Court of Appeal held that termination clauses in an employment contract should be read together. If any part or section of the contract dealing with the individual’s termination entitlements violates the minimum statutory requirements in any manner, all of the termination provisions are rendered unenforceable. In other words, the provisions are linked together. A severability clause will not save termination provisions that are rendered void by statute.
In the result, the Court of Appeal held that because the termination ‘for cause’ provision failed to meet minimum standards, the termination ‘without cause’ provision was therefore also unenforceable. This was so, even though the termination ‘without cause’ clause by itself, complied with minimum statutory requirements.
In practical terms, existing employment contracts should be reviewed and updated as necessary to ensure compliance based on this new legal standard. In particular, the following are likely to be problematic from an enforceability perspective:
- Termination clauses that permit employers to terminate for just cause and without any notice or payment in lieu;
- Bonus plans or clauses that require active employment as a pre-condition to payment of a bonus;
- Vesting of equity, restricted share units (RSUs), performance share units (PSUs), deferred share units (DSUs) options only if actively employed on the vesting date;
- Any provision that provides less than the employee’s minimum statutory entitlements on termination.
For more information, contact JPak Employment Lawyers today.