Termination For Cause After Waksdale v Swegon North America Inc.
Updated: Sep 9, 2021
Waksdale is yet another watershed case decided by the Court, in which the termination for cause provision in the employment contract invalidated the entire termination provision because it violated the Employment Standards Act.
Table of Content:
1. Case History of Waksdale v Swegon North America Inc.
The Case went all the way to the Supreme Court of Canada, below is a brief case history.
Superior Court of Justice decision - 2019-10-03 - 2019 ONSC 5705 (CanLII)
The employment contract has a "Termination of Employment with Notice" provision.
The Agreement also contained a “Termination for Cause” provision. The Plaintiff submitted that this provision breached the terms of the Employment Standards Act (“ESA”) and was therefore void and unenforceable. The Defendant conceded that this clause violated the ESA and was unenforceable, but says that it is in any case irrelevant to the current dispute as the Plaintiff was not terminated for cause.
There was also a severability clause in the Agreement. That provision made any illegal clause severable from the rest, in the following terms:
You agree that if any covenant, term, condition or provision of this letter outlining the offer of employment with the Company is found to be invalid, illegal or incapable of being enforced by a rule of law or public policy, all remaining covenants, terms conditions and provisions shall be considered severable and shall remain in full force and effect.
The motion judge dismissed the summary judgment motion with cost in favour of the Defendant and held that:
 These cases certainly make policy and logical sense; an employer who has presented an employee with an invalid clause cannot make that clause valid by subsequent conduct. The cases are premised on the termination clause being contrary to the ESA, and therefore void, in the first place. In that type of situation, nothing the employer subsequently does can fix the breach.
That, however, is not this case. The Defendant does not seek to invoke or to in some way remediate the invalid Termination with Cause clause. Rather, it invokes, and seeks to enforce, the Termination of Employment for Notice clause on the very terms on which it was agreed. That clause was valid when the Agreement was entered into and remains valid upon the Plaintiff’s termination.
Court of Appeal - 2020-06-17 - 2020 ONCA 391 (CanLII)
The Plaintiff appealed the decision to the Court of Appeal. The decision of the motion judge was reversed. The Court of Appeal held that:
 .... 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. Recognizing the power imbalance between employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESA rights. 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. Here the motion judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.
 .... A severability clause cannot have any effect on clauses of a contract that have been made void by statute: North v. Metaswitch Networks Corporation, 2017 ONCA 790, 417 D.L.R. (4th) 429, at para. 44. Having concluded that the Termination for Cause provision and the Termination of Employment with Notice provision are to be understood together, the severability clause cannot apply to sever the offending portion of the termination provisions.
Supreme Court of Canada - 2021-01-14 - 2021 CanLII 1109 (SCC)
The Defendant appealed the decision. The Supreme Court of Canada did not object to the analysis of the Court of Appeal and refused to hear the appeal, and held that:
The application for leave to appeal from the judgment of the Court of Appeal for Ontario, Number C67616, 2020 ONCA 391, dated June 17, 2020, is dismissed with costs.
2. Lesson Learned from Waksdale v Swegon North America Inc.
Waksdale confirmed that any attempt to contract out of the ESA will not be saved by construction of a severability provision that the invalidity of one termination provision now has the legal effect of invalidating all other termination provisions within the same agreement.
In another word, if the termination for cause provision allow an employee to be terminated any short of wilful misconduct under the ESA, the employment termination provisions will be deemed to be unenforceable.
The court determined that "a proper analytical approach is to assess whether the termination terms in an employment agreement are in violation of the ESA" and that "severability clause has no impact on contracts that have been rendered unlawful by legislation."
3. Cases that Have Applied the Waksdale Test
a. Sewell v. Provincial Fruit Co Limited, 2020 ONSC 4406
The Plaintiff in this case cited to Waksdale v. Swegon North America Inc., 2020 ONCA 391; Wood v. Fred Deeley Imports Ltd, 2017 ONCA 158; and Rossman v. Canadian Solar Inc, 2019 ONCA 992. The Court invalidated the entire termination provision in the employment contract and held that:
 ... applying Waksdale, I find that the “Termination for Just Cause” provision of the contract was illegal insofar as it contracted around the ESA requirement to provide notice except in cases where an employee engaged in “willful misconduct.” Based on the Court of Appeal’s reasoning, I must read the contract as a whole and set it aside if one or more of the terms are illegal, even if the offending term is not at issue in the instant case.
 Based on this analysis, the employment contract is void and the plaintiff is entitled to common law reasonable notice.
b. Lamontagne v. J.L. Richards & Associates Limited, 2021 ONSC 2133
The Court confirmed that the presumption of reasonable notice at common law is rebuttable “if the contract of employment clearly specifies some other notice period” and that the employment agreement must always comply with the ESA”.
Citing Waksdale, the Court held, at para. 37, that that the termination “with cause” language was illegal as an attempt to contract out of the ESA “as it incorporates the common law ‘just cause’ concept, which means that an employee could be terminated without any notice for conduct that is not ‘willful’ or ‘bad on purpose’.”
c. Ojo v. Crystal Claire Cosmetics Inc., 2021 ONSC 1428
Citing Waksdale, the Court held that at para. 12 to 14, “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.” The Court found that the termination provision purported to permit the employer to provide no payment in lieu of notice if the employee “engages in conduct which constitutes just cause for summary dismissal,” which is a lesser standard than that required by the ESA of “wilful misconduct or disobedience.”
d. Perretta v. Rand A Technology Corporation, 2021 ONSC 2111
The Court cited Waksdale, among other cases, and decided that the Employment contract has a summary termination (termination for cause) provision that fell short of the ESA wilful misconduct standard, and the entire termination provision in the employment contract was invalid as contrary to the ESA.
Going forward it would be extremely surprising to find a case that deviate from the Waksdale Test. Employment contract drafting is technical, and hiring an employment lawyer for contract drafting or contract review is highly recommended whether you are an employer or an employee.