A Defective Portion of the Termination Clause Will Invalidate the Entire Provision

This week, the Court of Appeal released a decision that will drive lawyers back to their clients’ employment agreements with a fine-tooth comb to ensure all provisions of the contract are perfectly compliant with the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”). In Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Court of Appeal decided that a defective part of a termination clause, even if irrelevant to the situation, can render the entire provision void and unenforceable.

In this case, the Appellant worked as the Respondent’s employee for eight months, and earned a salary of $200,000 per annum. The Respondent terminated the Appellant without cause and provided two-week’s pay in lieu of notice, pursuant to the employment agreement. The Appellant sued the Respondent for wrongful dismissal and moved for summary judgment, arguing that the Respondent did not provide him with reasonable notice of dismissal. The Appellant took the position that the termination clause in his employment agreement was void because the “Termination for Cause” provision breached the ESA. The Respondent conceded to the non-compliance, but argued that it was irrelevant; the Respondent was relying on the entirely different, and legally-sound, provision related to Termination with Notice. The Motion’s Judge agreed with the Respondent and dismissed the Appellant’s action on the grounds that the Termination with Notice provision acted as a stand-alone, unambiguous and enforceable clause.

On Appeal, the Court overturned the lower Court’s decision, holding that the Motion’s Judge erred in applying a piecemeal method when interpreting the termination clauses without proper regard to their combined effect. The Appeal Court held that the correct analytical approach was to determine whether the termination provisions in the employment agreement read as a whole violated the ESA.

Interestingly, the Court of Appeal also refused to give effect to a severability clause in the agreement that could have nullified any illegal provisions while preserving the remaining contract. Having concluded that the Termination for Cause provision and the Termination with Notice provision were to be interpreted together, the severability clause could not apply to sever the offending portion of the termination provisions.

The Court stated that decision makers should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESA rights. While Courts may permit an employer to enforce a rights-restricting contract, they may not enforce termination provisions that are in whole or in part illegal.  In conducting this analysis, it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked.

This deferential ruling in favour of the employee stems from a long tradition of tipping the scale in favour of the vulnerable party where there is a power imbalance. Earlier Court of Appeal decisions held that the purpose of the ESA is to protect the interests of employees, and not those of the employers. For now, it is unclear whether this ruling is limited to termination clauses or can be extended to other provisions that contravene the ESA. Therefore, to avoid the risk of deeming any pertinent clauses inoperative, the best way forward is to ensure each provision of the contract is statute-compliant.