Ontario Employers Need to Review their Employment Agreements—the Waksdale Decision is Here to Stay

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Bennett Jones LLPOn January 15, 2021, the Supreme Court of Canada denied an application for leave to appeal from the Ontario Court of Appeal's June 2020 decision in Waksdale v Swegon North America Inc., 2020 ONCA 391. As a result, many provincially-regulated employers in Ontario are now saddled with unenforceable termination provisions in their employment agreements with non-union employees, unless steps are taken to rectify them. Failing to take these steps may materially increase an employer's severance costs. 

In Waksdale, a company terminated an employee without cause and paid him severance as per the termination without cause provision in the employee's employment agreement. In response, the employee sued the company, claiming the otherwise enforceable termination without cause provision in his agreement was now unenforceable because a separate with cause provision in his agreement was unenforceable. Although not reproduced in the case, a with cause provision that stipulates something along the lines of "if you are terminated for cause, you will not be entitled to payments of any kind" is likely unenforceable for being offside of Ontario's employment standards legislation. 

Ultimately, the Court of Appeal agreed with the employee that the without cause provision could not be applied to define the employee's entitlement because the with cause provision in the same agreement was unenforceable—even though the employee was not terminated for cause and was offered more than his statutory entitlements. The Court also refused to give effect to the severability clause in the employee's employment agreement, which would typically make an unenforceable clause severable from the agreement. The result was that the employee was entitled to common law notice, thereby significantly increasing the employer's severance costs at a time when most companies were looking to curtail costs in response to the COVID-19 pandemic.

The key takeaway for Ontario employers is that if you have not yet reviewed your employment agreements since the Waksdale decision last summer, now is the time to do so. This involves confirming whether all the termination provisions (including the without cause, with cause and resignation provisions) in your employment agreements are enforceable. If not, those provisions should be updated before hiring any new employee in Ontario. For current employees in Ontario, a signing bonus, salary increase or other new incentive can be used to get those employees to sign new agreements with updated termination provisions.

Lastly, although the Waksdale decision is an Ontario decision based on the specific wording of Ontario's employment standards legislation, it is important for national employers to consider its application in other provinces, particularly given the Supreme Court's refusal to grant leave to appeal. Specifically, it is possible that similar reasoning may now be applied to render unenforceable termination provisions for employees in other provinces, having regard to the applicable employment standards legislation of those provinces. This risk would seem highest in Nova Scotia and in Newfoundland and Labrador where the employment standards legislation has a similar "cause" definition as the Ontario employment standards legislation, but employers in all provinces should address these issues now to provide greater certainty of enforceability.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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