The recent ruling by the Ontario Court of Appeal in Wakesdale vs. Swegon North America (ONCA 391 2020) has the potential to void many termination provisions within employment contracts. Accordingly, the ruling touched upon key factors relating to termination clauses, including the interpretation of just cause under the Employment Standards Act (2000), and severability clauses contained in the majority of employment contracts.

Willful Misconduct – The Employment Standards Act (2000)

For a termination clause to be enforceable, it cannot provide employees a lesser standard than the Employment Standards Act (ESA). The ESA states that an employer must provide notice or pay in lieu in the absence of ‘willful’ misconduct. This means that the misconduct warranting a summary dismissal must be intentional, which precludes terminations based on poor performance, for instance, from disqualifying employees of notice or pay in lieu. In the ruling, however, the termination clause stated that Mr. Walesdale’s employment could be terminated for cause without notice or pay in lieu. ‘Cause’ under common law can include acts of unintentional misconduct, such as poor performance. The employment contract of Mr. Walesdale here could, therefore, have created a scenario that violated the ESA, which renders the clause invalid.

Severability Clauses in Relation to Termination

In the case above, Mr. Walesdale’s employment contract separated the termination provisions into 2 clauses. The one clause withheld notice pay if the employer could establish ‘cause’ (this was invalid). Another separate clause allowed the employer to terminate the employee by providing adequate notice relative to the ESA, however, less than the employee was entailed to under common law (this is valid on its own). The employer made the termination in accordance with the valid provision, relying on the severability clause, which states that if an individual clause in the contract is found invalid, the remaining clauses in the employment contract are not invalid as a result.

Accordingly, the employer argued that since the employee was terminated in accordance to the valid clause, and not the invalid clause, the employee was not entitled to damages. The court disagreed.

Takeaway:

The most significant takeaway from this ruling is that severability clauses do not provide employers the luxury of separating different parts of a termination provision and having the valid portion stand on its own; termination provisions must be interpreted and read as a whole. Further, the specific wording of termination clauses must not provide less protection than the ESA. If termination provisions fail to account for the ‘wilful’ qualifier in the ESA, the clause will likely be invalid. The implications of this ruling by the Ontario Court of Appeal is likely to void many termination clauses in effect today. Employees should seek legal consultation if their severance pay was limited by an employment clause in their contract.

With years of experience in this ever-changing area of law, we at Whitten & Lublin are happy to provide insight and advice into your specific work situation. If you’re looking for employment lawyers and would like more information about what Whitten & Lublin can do for you, please contact us online or by phone at (416) 640-2667 today.

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