New Ruling on Termination Clauses a “Game-Changer”

June 22nd, 2020 in Employment & Severance


Enforceability of Termination Clauses

When starting a new job, an individual is usually required to sign an employment agreement, which is a document that sets out the obligations of both the employee and the employer. Often times, an employment agreement will include details regarding the employee’s entitlements upon termination with or without cause. These clauses are rarely understood by the employees. They are often times not understood by lawyers unless they specialize in employment law.

In an attempt to balance the interests of employers and employees, courts have frequently struck out invalid termination clauses but have also upheld termination clauses which are properly drafted and provide employees what they are owed under the Ontario Employment Standards Act, 2000 (“ESA“). If a termination clause does not conform to the ESA or violates other guaranteed rights of the employee, courts have held that the termination clause is unenforceable and allowed the dismissed employee to claim common law notice, which is far greater than the prescribed minimums under the ESA. This can represent a major monetary advantage for the dismissed employee.

In a previous blog, we discussed two recent landmark cases that dealt with the issue of enforceability of termination clauses. The first decision, the Ontario Court of Appeal upheld a termination clause despite the fact that it did not set out each individual obligation the employer owed to the employee upon termination[1], which greatly benefitted employers. The second case was far more employee-friendly by deciding that the termination clause expressly denied the continuation of benefits, as required by the ESA, and was therefore unenforceable.[2]

How the Waksdale Decision Affects Termination Clauses

Very recently, the Ontario Court of Appeal decided that no matter where termination provisions are located in the employment contract, they are to be read together.[3] Essentially, if a for-cause termination provision is at the beginning of the document and a without-cause termination provision is at the end of the document, both of these clauses need to be valid in order for any part of either termination provision to be enforceable.

Further, the court also made note of the issue of severability, deciding that even if they are in different clauses or paragraphs, all provisions that relate to termination are inseverable.

We believe that this decision will affect countless employment contracts by invalidating the entire termination clause, even if only one portion of it is invalid. The Waksdale decision clarifies that if a termination provisions is unenforceable because it violates the ESA, no other termination provision will be considered valid either.

Key Takeaways for Employers

From an employer’s perspective, the decision in Waksdale exemplifies the importance of a carefully-crafted employment contract. In order for a termination clause to stand up to the increased scrutiny in court, it is necessary that every part of the termination clause, including both with-cause and without-cause termination provisions, are drafted in accordance with the relevant legislation.

Key Takeaways for Employees

Losing a job is a very stressful and difficult time in anyone’s life. Frequently, terminated employees are not aware of their rights upon termination and will often sign a release without understanding what they are actually entitled to under the law. The Waksdale decision may be a game-changer for employees who may have otherwise been limited to ESA entitlements. When faced with the termination of their employment, employees should seek out legal advice even if they feel that they may have contracted out of further entitlements. It is likely that they are entitled to more than the employer has offered upon termination.

How We Can Help

Our firm is well-equipped to help both employers and employees manage their rights upon termination. If you are an employee who has been terminated or an employer seeking advice on valid termination clauses, our employment law team is here to help. Our team has valuable knowledge in the field and is led by J.F. Lalonde, a highly qualified employment lawyer with over 15 years’ experience representing both employers and employees.

To reach the authors of this blog, J.F. Lalonde and Andrew Donaldson, please call 613-232-5773.

[1] Oudin v Centre Francophone de Toronto, 2016 ONCA 514.

[2] Wood v Deeley Imports Ltd., 2017 ONCA 158.

[3] Waksdale v. Swegon North America Inc., 2020 ONCA 391.

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