Court of Appeal Rules on Unenforceability of Termination Clause.
It is well-accepted law that an employee cannot contract out of their termination entitlements under the Employment Standards Act, 2000 (“ESA”). This principle has often been applied in situations involving termination without cause. Many employers require employees to agree, upon being hired, that if they are terminated without cause, their entitlement is limited to that provided by the ESA. This tends to eliminate the employee’s potential entitlement under common law.
A recent decision made by the Ontario Court of Appeal has shown that if an employer includes conditions of termination that are contrary to the ESA, it risks the possibility that all termination provisions will be invalid and unenforceable.
In the case of Waksdale v. Swegon North America, the Court found that because the provision limiting entitlement upon termination with cause was inconsistent with the ESA, all termination provisions were rendered unenforceable, including the provision for termination without cause.
In Waksdale, the employee was terminated without cause, but argued that because the with-cause provision breached the ESA, the entire agreement (or, at least, the termination without cause provision) was void and unenforceable.
While the trial judge held in favour of the employer, the Court of Appeal overturned that decision, declaring that the two termination provisions must be read together. The Court stated as follows at paragraph 10 of its decision:
[…] 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, 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 also held that the employer could not rely on a severability clause, stating that “[a] severability clause cannot have any effect on clauses of a contract that have been made void by statute […]”. The Court further held that an employer could not remedy an illegal provision by later acting in accordance with the ESA: “Where an employer does not rely on an illegal termination clause, it may nonetheless gain the benefit of the illegal clause.”
In rendering this decision, the Court of Appeal appears to be protecting employees, particularly those who may not be familiar with the provisions of the ESA and may be coerced into acting in accordance with an unfair employment agreement.
Employers should exercise caution in drafting their offers of employment and employment agreements to ensure they are meeting the basic entitlements provided for in the ESA, in order to avoid rendering their agreement or portions thereof unenforceable. If a term related to termination entitlement is declared invalid and unenforceable, the employee may be eligible for notice or payment in lieu of notice pursuant to common law, which can be expensive, opening up the employer to liability for greater compensation.
For more information with regard to employee entitlements under the ESA, please consult the Employment Standards Act, 2000, O. Reg. 288/01: Termination and Severance of Employment under the ESA, or contact our offices to consult with a Barriston lawyer.
Jacklyn Tuckey, Associate