Termination clauses in employment contracts outline what an employee can expect to receive upon dismissal. Typically, when an employee is dismissed for just cause, they are not entitled to a termination package. To determine whether just cause in fact exists, the employee’s wrongful act, negligence, or gross incompetence must be so severe that it is incompatible with the fundamental terms of the employment contract and relationship.
While termination clauses may be unenforceable for many reasons, the Ontario Court of Appeal in Waksdale v Swegon North America Inc, 2020 ONCA 391 has held that an unenforceable just-cause termination clause cannot be read as separate from the whole termination clause.
Motion for Summary Judgment Decision at Trial Court:
At the motion for summary judgment in Waksdale v Swegon North America Inc, 2019 ONSC 5705, the Ontario Superior Court of Justice examined whether the illegality of a for-cause termination clause rendered the with-notice termination clause unenforceable. In this particular case, the Plaintiff had entered into an employment agreement with two separate termination clauses, outlining what he could expect under a with-cause and a without-cause termination.
While the employee was dismissed without cause, he had commenced a wrongful dismissal claim, and alleged the with-notice termination clause was unenforceable due to the with-cause termination clause being void.
Interestingly, the Defendant conceded the for-clause clause was unenforceable due to violating the Employment Standards Act, 2000; however, the Defendant argued it was irrelevant, given the two clauses were separate.
The Ontario Superior Court of Justice agreed with the Defendant, holding that the with-notice termination clause was always valid, and was not touched by the with-cause termination clause.
The motion for summary judgment was dismissed, and the Plaintiff was ordered to pay the Defendant $16,000 for costs.
The Plaintiff appealed.
Ontario Court of Appeal Decision Sets Aside Lower Court Decision:
The Ontario Court of Appeal held that the motion judge erred in law in interpreting the employment contract. Essentially, termination clauses cannot be read separately, no matter how they are laid out. An employment agreement must be interpreted as a whole and not piece by piece.
As the for-cause and the with-notice termination clauses must be understood together, the severability clause cannot apply to sever the offending portion of the termination clauses.
It was also irrelevant that the employer was relying on the with-notice termination clause at the time of the dismissal, as the enforceability of the termination clauses must be determined at the time the agreement was executed.
The Ontario Court of Appeal set aside the motion judge’s order, and ordered the matter be remitted to the motion judge to determine the employee’s damages and costs of the action.
It is essential for the employers to ensure all parts of their employment contract, especially their termination clauses, are updated according to new law and legally compliant. Employers should not rely on their severability clauses to save them from offending portions of their termination clauses.
Employees should also have their employment contracted diligently reviewed to make sure they understand the terms before signing.
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