Ontario’s Court of Appeal, our highest provincial Court, recently released a very important decision affecting the enforceability of written employment agreements and employers’ efforts to limit reasonable notice to only the statutory minimums in Ontario, rather than the judge-made, common law extended entitlements.
This case is favourable to employees who already have existing, written employment agreements.
The employee sued his employer for wrongful dismissal. He moved for “summary judgment” (i.e., a decision without a trial, as a trial would allegedly be unnecessary in the case). The employee claimed entitlement to damages because the employer did not provide him with common law reasonable notice of dismissal. The employee took the position that the termination provisions in his employment contract were void because they contracted out of the minimum standards of the ESA. The employer acknowledged the cause termination provision in the employment agreement was void because it violated the ESA.
However, based on earlier cases in Ontario, the employer argued that the without cause termination provision was valid, and because the employer was not alleging cause, it could rely on the without cause provision as a stand alone, insulated provision of the contract.
The employee acknowledged that the without cause provision alone was valid and enforceable.
The issue was if the illegality of the cause provision rendered the without cause provision unenforceable.
The Court of Appeal addressed the key issue - whether the two clauses (“just cause” and “without cause”) should be considered separately or whether the illegality of the just cause provision impacted the enforceability of the without cause provision.
The Court said an employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal. In conducting this analysis, the Court of Appeal held it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked. The Court found that the motion judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.
The Court also concluded that it was irrelevant that the employer ultimately did not rely on the just cause termination provision. Rather, the enforceability of a termination provision must be determined at the time the employment agreement was executed.
The Court also disregarded the severability clause in the employment agreement, holding that a severability provision cannot have any effect on contract provisions that have been made void by legislation. Having concluded that the just cause and without cause provisions were to be understood together, the severability clause could not apply to sever the offending portion of the termination provisions.
This is an important decision for employment law in Ontario, favourable to employees, given that many employment agreements purporting to limit notice entitlement to only the Ontario statutory minimums remain in circulation.
Waksdale v. Swegon North America Inc., 2020 ONCA 391