Just Cause Provisions May Invalidate Entire Termination Clause in Employment Agreements

Earlier this week the Ontario Court of Appeal rendered its decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391 in which the Court was asked what effect a ‘just cause’ provision that did not mirror the wording of the Employment Standards Act, 2000 (ESA) had on an otherwise enforceable ‘without cause’ termination clause. In this case the employer was not seeking to rely on the ‘just cause’ provision.

The Court did not reproduce the offending clause, which the employer conceded breached the terms of the ESA by providing more latitude to fire an employee without notice, pay in lieu of notice, and severance than the ESA allows. As a reminder, Regulation 288/01 to the ESA only allows employers to terminate employees without notice or severance (i.e. for “cause”) where the employee has “been guilty of willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer.”

The Court held that since the ‘just cause’ clause provided more latitude than Regulation 288/01 and the ESA allow that it must be struck down, and that even though the clause was separate from the ‘without cause’ provision, the entire contract must be read together and that the ‘without cause’ provision – which was enforceable in isolation as not having contracted out of the minimum entitlements ESA – must now also be struck down.

The Court also held that the ‘severability’ clause in the employment contract could not sever the clause or inoculate the ‘without cause’ provision from the illegality of the ‘just cause’ provision. As a result, the employee was awarded common law notice to be assessed by the Superior Court of Justice.

Any Ontario employer who has a ‘just cause’ provision in their employment contracts should carefully examine the agreements to ensure that the clause does not provide broader discretion than allowed by the ESA and Regulation 228/01.

Employers should consider:

If you think your contracts might be at risk, we encourage you to contact us so that we can help you bring your employment agreements into compliance. 

The foregoing has been prepared for clients of Loopstra Nixon LLP. While every effort has been made to ensure accuracy, the information contained herein should not be relied on as legal advice; specific advice should be obtained in each individual case. No responsibility for any loss occasioned to any person acting or refraining from action as a result of material herein is accepted by the authors or Loopstra Nixon LLP. If advice concerning specific circumstances is required, we would be pleased to be of assistance.

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