To the surprise of many, the Supreme Court of Canada recently denied leave to appeal in Waksdale v. Swegon North America Inc., a critical decision released by the Ontario Court of Appeal last summer that had widespread implications on the enforceability of termination provisions in employment contracts in Ontario. With this denial, it appears the principles outlined by the ONCA in Waksdale are here to stay and employers and employees alike would do well to take note of the consequences of the decision.
The employee in the Waksdale decision, Benjamin Waksdale, was terminated from his employment at Swegon North America Inc. (“Swegon”) after just eight (8) months of service. He was provided with two (2) weeks’ severance pay in accordance with the formula outlined in the ‘without cause’ termination provision in his employment contract. Although Mr. Waksdale was not terminated ‘for cause’, he argued that the ‘for cause’ provision violated employment standards legislation and was therefore unenforceable. He further argued that the unenforceability of the ‘for cause’ provision rendered the ‘without cause’ provision unenforceable as well. The lower court disagreed, finding that while the ‘for cause’ termination provision was unenforceable due to non-compliance with employment standards legislation (it didn’t contemplate the possibility of ESA termination payments being owed in the face of conduct that constituted cause at common law but that did not meet the higher threshold under the ESA for depriving an employee of their statutory termination entitlements) that did not render the separate ‘without cause’ termination provision unenforceable.
Mr. Waksdale appealed this decision to the Ontario Court of Appeal. The Court of Appeal agreed with Mr. Waksdale, ruling that an employment agreement must be interpreted as a whole and not on a piecemeal basis. The Court of Appeal further stated that it would not enforce termination provisions that are in whole or in part illegal. The Court of Appeal reiterated that all termination provisions, regardless of whether they are found in one or several places in an employment agreement, must be read together. The lower court erred, said the Court, because it failed to read the termination provisions (i.e., both the ‘for cause’ provision and the ‘without cause’ provision) as a whole and instead applied a piecemeal approach without regard to the combined effect of the termination provisions. The result of such an approach was that Swegon could no longer rely on the ‘without cause’ termination provision in the employment contract, and thus Mr. Waksdale was entitled to a considerably larger severance payment, in accordance with the principles of common law reasonable notice.
Swegon applied for leave to appeal the Court of Appeal’s decision to the Supreme Court of Canada, but the Supreme Court declined to hear the appeal, thereby solidifying the Court of Appeal’s decision as the current state of the law in Ontario.
This decision has far-reaching consequences for both employers and employees. For employers, it means that termination provisions in existing employment contracts may very well be unenforceable, which could result in significantly greater severance obligations to employees upon termination. As such, employers would do well to have their current employment contracts reviewed, with the Waksdale principles in mind, with a view to ensuring that the termination provisions remain enforceable.
For employees, the result of the Supreme Court’s refusal to grant leave is that although it may appear as though your termination entitlements are limited by the termination provision in your employment contract, that provision may not be enforceable, in which case you could be entitled to a considerably larger severance payment upon termination.
Whether you are an employer who would like your employment contracts reviewed, or an employee seeking to understand your termination entitlements, the specialized and experienced lawyers at Sevigny Dupuis LLP are well-versed in the current state of the law and would be happy to assist.
Disclaimer: As always, this post does not constitute legal advice and we would encourage you to seek professional legal advice from one of our knowledgeable lawyers before making any decisions with respect to your own case.