The 17 June 2020 decision of the Ontario Court of Appeal for the case of Waksdale vs. Swegon North America Inc. may have repercussions on the enforceability of existing employment contracts and require employers’ to revise the termination of employment clauses contained.
In Canada, employers have an implied common law obligation upon termination of employment, meaning that the employee can be dismissed without cause, but he/she shall receive a notice of termination of employment. Common law does not apply when the employment contract contains a different termination provisions that is in line with other minimum statutory requirements.
In Ontario, for employees working within the province’s jurisdiction, minimum statutory requirements foresee that termination of employment is possible:
- with cause and without notice period, if the employee has been guilty of wilful misconduct, disobedience or wilful neglect of duty (in accordance with Section 2 of Regulation 288/01);
- without cause but with notice or pay in lieu of notice, determined in accordance with the employment length (Section 57 of the Employment Standards Act “ESA").
Employment contracts may contain two separate termination clauses, one that applies where the employee is terminated without cause and the second one that applies where the employee is terminated with cause.
The case law prior to this Court of Appeal decision was analysing the clauses separately. Thus, if one clause violated the ESA it was considered null and void, whilst the other clause remained valid and applicable.
With the Court of Appeal decision, these clauses shall be analysed together and it must be determined whether, read as a whole, they violate the ESA.
If the employment contract contemplates that no notice or pay in lieu of notice will be provided to an employee in the event of termination with cause for any reason, the with cause termination clause may violate the ESA and be unenforceable. This is because the ESA only permits an employer to terminate without notice or pay in lieu of notice in limited circumstances. In particular, Section 2(1) of Regulation N.288/01 states that the ESA allows an employer to terminate without notice or pay in lieu of notice if “an employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer". Now, if the employment contract contains a termination clause with no notice for a similar reason but not expressed and/or explained exactly as in Regulation N. 288/01, this clause could be considered, as a whole together with the other clauses for termination without cause and with notice, as violating the ESA.
This important change in Ontario Case Law requires employers to draft employment contracts carefully, in a manner that does not violate the provincial employment regulation.