Is Your Termination Clause Valid?

The recent case Waksdale v. Swegon North America Inc., 2020 ONCA 391 has had a large impact on employment law in Canada. In this case, the Ontario Court of Appeals held that a termination clause cannot be “read down” but instead must be held as a whole when considering if it meets the minimum standards of the Employment Standards Act (ESA). Therefore, if one part of the termination clause violates the ESA, the entire clause is struck down.

This clause is significant because the amount of “reasonable notice” under the common law is often substantially longer than provided for under the ESA. Termination clauses allow employers to contract out of the notice periods under common law and provide the lower ESA notice when firing an employee. Under the rule set by Waksdale, many employers may find that their termination clauses are invalidated.

The case confirmed some key points about the ESA. Specifically, the court held that the ESA should be interpreted in a way that extends its protections to as many employees as possible. Moreover, the court held that “If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship.”

How should employers respond to Waksdale?

The first step employers should take is to review their employment contracts. Specifically, the termination clauses should be reconsidered. In Waksdale, the “termination without cause” section met the standards by the ESA, but was nonetheless struck down because the “termination for cause” provision violated the ESA. Employers therefore should pay close attention to their “termination for cause” sections and ensure it meets the minimum standards of the ESA. Some employers may consider removing the “termination for cause” section entirely from their old contracts and providing notice to all employees according to the “without cause” provisions of the ESA.

Employers should consider the Ontario Court of Appeal’s pro-employee and broad interpretation of the ESA and draft their employment contracts accordingly. The ESA represents minimum standards that employees are entitled to and courts are reluctant to weaken these protections. Therefore, employers should not attempt to circumvent the ESA as they will risk costly litigation and being obligated to provide common law notice to employees.

The difficulty in drafting employment contracts should not deter employers from creating written employment agreements. Written contracts still provide certainty in an employment relationship and can help avoid litigation. If possible, employers should attempt to sign new contracts with their previous employees that reflect the decision in Waksdale.

How should employees respond to Waksdale?

Employees in Ontario should remain aware of the provisions of the Employment Standards Act, specifically the sections that deal with reasonable notice and payment in lieu of notice. Employees should be cautious if their employers ask them to sign a new employment contract and should review their options with a lawyer. The old contract that seemingly offers less may unintentionally provide for common law reasonable notice.

If an employee is fired, they should speak with a lawyer before signing any termination letter or release. A lawyer can help the employee consider whether the termination clause is valid and determine if appropriate severance was paid.

If you have questions about employment law, need an employment contract drafted or have been fired from your job, call (647)-494-9599 or email us at info@law365.ca.