Are the termination provisions in your employment contract enforceable?
The answer may be no. Two recent decisions of the Ontario Court of Appeal, Waksdale v Swegon North America Inc., 2020 ONCA 391 [Waksdale] and Rahman v Cannon Design Architecture Inc., 2022 ONCA 451 [Rahman], held that courts consider the enforceability of all termination provisions in an employment agreement jointly. These decisions may make it easier for employees in wrongful dismissal actions to claim that their employment agreements are unenforceable as far as they purport to restrict entitlement to ‘reasonable notice’ upon termination.
Waksdale v Swegon North America Inc.
Waksdale was an action for wrongful dismissal. The Ontario Court of Appeal (“ONCA”) overturned the lower court’s decision and ruled in favour of the plaintiff employee. It held that a termination provision for “just cause” without notice was void as it violated the Employment Standards Act (the “ESA”) and was thus unenforceable. Waksdale is especially significant for the holding that an “employment agreement must be interpreted as a whole and not on a piecemeal basis”: Waksdale at para 10.
Rahman v Cannon Design Architecture Inc.
In Rahman, another action for wrongful dismissal, the ONCA followed Waksdale and again overturned a lower court decision regarding the enforceability of an employment contract. The court held that where one termination provision in an employment contract violates the ESA (e.g., a termination for “just cause” without notice provision), all the termination provisions are invalid: Rahman at paras 30-31.
These cases have significant consequences. For one, an employment contract which contains a similarly ambiguous ‘termination for just cause without notice’ provision will likely be unenforceable for the purpose of restricting an employee’s right to ‘reasonable notice’ upon termination. It is also possible that provisions which are unenforceable for reasons other than the ‘just cause’ example above will prevent employers from relying on the terms of the employment contract at the time of termination.
What might this mean for employees, employers, and employment lawyers?
For employees, this is good news: employees may be able to take advantage of these decisions and claim additional monies from an employer at the time of termination. Employers will often offer an additional sum to employees upon termination in exchange for a signed release document. The decisions above may mean an employee is entitled to more money than an employer initially offers.
For employers, these decisions make it prudent to revisit standard form employment contracts and existing agreements. Unenforceable termination provisions may leave an employer liable to pay significant damages upon termination of an employee.
For employee-side lawyers, these decisions are a powerful tool to increase bargaining power. For management-side lawyers, these decisions provide guidance when drafting contracts and advising clients about terminations.
Lawyers should pay attention to other potential issues of enforceability in all the termination provisions within an employment agreement. As Waksdale and Rahman suggest, courts will consider their enforceability as a whole and not on a ‘piecemeal’ basis.
- AJC
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