Up until the Waksdale v Swegon North America case decided by the Court of Appeal on June 18, 2020, the traditional analysis of termination provisions in employment agreements was to examine the specific termination provision applicable to the facts of the case (i.e. the just cause provision or the termination without cause provision). From there, they would decide whether that specific termination provision was enforceable.
However, in the Waksdale case, the Court of Appeal decided that the correct approach is to assess the enforceability of all of the termination provisions in the employment agreement, and if one of the specific provisions is unenforceable, then all of the provisions will be unenforceable.
On the facts of the case, the termination with cause provision was found to be unenforceable because it was contrary to the Employment Standards Act. Therefore, despite the fact that Mr. Waksdale had been terminated without cause, all of the termination provisions were found to be unenforceable. Mr. Waksdale became entitled to common-law damages as opposed to the one week’s notice owed to him under the termination without cause provision based on his service of less than one year. The Court of Appeal remitted the case to the trial judge to make the damages assessment.
The “Severability” Clause
Most employment agreements contain a “severability” clause which indicates that if one or more paragraphs in the employment agreement are found to be unenforceable, the rest of the agreement’s provisions remain in place. This argument failed before the Court of Appeal; the court stated: “A severability clause cannot have any effect on clauses of a contract that have been made void by statute.”
Finally, previous Court of Appeal decisions were referred to in order to reinforce the proposition that the enforceability of an employment agreement is to be adjudicated as of the time of its signing – not as of the time of termination or in light of how the employer has applied those provisions.
The decision-making of the Court of Appeal regarding the enforceability of termination clauses over the last few years has swung back and forth between decisions perceived to be favourable to the interests of employers and other decisions perceived to be favourable to the interests of employees. This decision is clearly in the latter camp – it remains to be seen whether the employer will appeal to the Supreme Court of Canada.
In the interim, employers are well advised to review their employment agreements on a regular basis, especially the termination provisions in those agreements.
If you require any support, please do not hesitate to reach out to our Labour and Employment Team or to call our offices at 613.544.0211.