When it comes to claims for wrongful dismissal, without cause termination provisions have received almost all of the attention in recent years.
However, in the wake of a recent landmark decision by the Court of Appeal for Ontario ("ONCA"), employers should now be turning their attention to the other portions of the termination provisions in their non-unionized employees' contracts.
Background: Not Just Another Wrongful Dismissal Case
In Waksdale v. Swegon North America Inc., 2020 ONCA 391 ("Waksdale"), the Court considered the wrongful dismissal claim of Benjamin Waksdale, a former employee of Swegon North America Inc.
Swegon terminated Mr. Waksdale's employment without cause after eight months of service. It provided him with two weeks of pay-in-lieu of notice in accordance with the formula set out in his employment contract. However, Mr. Waksdale subsequently commenced a claim for wrongful dismissal to recover six months of pay-in-lieu of notice.
Mr. Waksdale acknowledged that the without cause termination provision included in his contract was lawful. He argued instead that the for cause termination clause was unenforceable for violating Ontario's Employment Standards Act, 2000, S.O. 2000, c. 41 ("ESA"). He further argued that the unenforceability of the for cause provision rendered the without cause portion of the provision also unenforceable, which entitled him to a notice period determined at common law.
In response, Swegon conceded that the for cause provision violated the ESA. However, it indicated that it had relied on the lawful without cause provision, not the unenforceable for cause provision. As such, it argued that the without cause provision was saved by the existence of a severability clause in the employment contract, which acted to sever the for cause provision from the remaining provisions.
In considering this matter, the Court, therefore, sought to determine whether the unenforceable for cause provision rendered the lawful without cause provision unenforceable, or if the without cause provision was saved by the severability clause.
Finding: Employment Contracts Must be Read as a Whole
The ONCA determined that the proper approach is to read employment contracts as a whole; not in piecemeal. Should any portion of the termination clause violate the relevant portions of the ESA, the employer would not be able to rely upon the termination provisions, and the employee would be entitled to a notice period determined at common law.
In conducting this analysis, the presence of a clear severability clause is unimportant; as is the fact that the employer relied on a different contractual provision to terminate the employee's employment.
Accordingly, in applying this analysis to the facts in Waksdale, the Court ultimately found that the unenforceable for cause provision rendered the otherwise lawful without cause provision unenforceable, despite the presence of a clear severability clause.
The Takeaway for Employers
The decision in Waksdale has important consequences for Ontario employers.
When drafting employment contracts, it is important to ensure that all of the language contained in the termination provisions concerning for cause or without cause terminations is compliant with the ESA.
If a portion is unenforceable, the balance of the clause may be deemed unenforceable, and, consequently, employers can be liable for extra months or years of pay-in-lieu of notice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.