Termination Clauses in Employment Contracts After Waksdale v Swegon North America Inc.
Updated: May 14
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:
Lamontagne v. J.L. Richards & Associates Limited, 2021 ONSC 2133
2022 to 2023 - Dr David Walt Dentistry Professional Corp Test
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 Plaintiff has sued the Defendant for damages for wrongful dismissal. The Plaintiff moves for summary judgment under Rule 21.01 of the Rules of Civil Procedure, seeking payment of his damages.
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:
[19] 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.
[20]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:
[10] .... 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.
[14] .... 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:
[19] ... 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.
[20] 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.
4. What is Wilful Misconduct under ESA?
Given the fact that a finding of an ESA wilful misconduct is crucial in justifying a termination for cause. The next logical question to ask is what is a wilful misconduct. As an employer, wouldn't you want to put the proper language in your employment contract to ensure that the termination clauses are enforceable?
a. Common Law Just Cause
i. McKinley v. BC Tel, 2001 SCC 38
Just cause termination was defined in the 2001 Supreme Court decision McKinley v. BC Tel, 2001 SCC 38.
The test was one that employs contextual analysis and that a just cause termination will only be upheld by a Court if the employee has committed serious misconduct(s), whereas penalty of summary dismissal is proportional to the misconduct.
In McKinley, the Supreme Court stated in para. 49 that "just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer' and in para. 50 that a court is to determine "(1) whether the evidence established the employee’s deceitful conduct on a balance of probabilities; and (2) if so, whether the nature and degree of the dishonesty warranted dismissal .... assessing the seriousness of the misconduct requires the facts established at trial to be carefully considered and balanced".
ii. Dowling v. Ontario (Workplace Safety and Insurance Board), 2004 CanLII 43692
The very vague language of "just cause" was clarified in Dowling by the Ontario Court of Appeal. The Court of Appeal stated in para. 49 that in determining whether "just casuse" exists, a Court MUST consider "whether an employee has engaged in misconduct that is incompatible with the fundamental terms of the employment relationship".
The Court of Appeal stated in para. 50 that the application of the Contextual analysis consists of:
determining the nature and extent of the misconduct;
considering the surrounding circumstances; and,
deciding whether dismissal is warranted (i.e. whether dismissal is a proportional response).
In a nutshell, the contextual analysis requires the circumstances surrounding the alleged misconduct be considered in its entirety when determining whether or not dismissal for cause is warranted. The Court must balance the severity of the misconduct with the sanction imposed. The focus is on whether or not the severity of the misconduct was proportional to the punishment of summary dismissal. When applying the contextual analysis, a court will review the circumstances of both the employee and the employer, and facts established at trial will be carefully considered and balanced.
In relation to the employee, one would consider factors such as age, employment history, seniority, role and responsibilities. In relation to the employer, one would consider such things as the type of business or activity in which the employer is engaged, any relevant employer policies or practices, the employee’s position within the organization, and the degree of trust reposed in the employee. (Dowling, para. 52)
A dismissal for cause will only be upheld if the misconduct is sufficiently serious that it would give rise to a breakdown in the employment relationship. (Dowling, para. 53)
b. ESA Wilful Misconduct
i. Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310
However, few cases provide any insight as to what's an ESA Wilful Misconduct and how is it different than "just cause" under Common law until April 2022, when the Render decision was released by the Ontario Court of Appeal.
In Render, the Court of Appeal clearly distinguished a wilful misconduct under the Employment Standards Act (ESA) from a common law "just cause" and found that although Mr. Render was rightly terminated for "just cause" under Common law, his conduct fell short of an "ESA wilful misconduct" and as such, while he was denied common law reasonable notice by the Court, he was entitled to ESA statutory termination pay.
In Render v. ThyssenKrupp Elevator (Canada) Limited, Mr. Render, a 30-year employee at ThyssenKrupp was terminated after a single incident that occurred in the workplace where Mr. Render slapped a female co-worker on her buttocks. The trial judge ruled that Mr. Render was rightly terminated for "just cause", and Mr. Render appealed the decision.
The Court of Appeal held in para. 79 to 80 that:
... in order to be disentitled from the ESA entitlements under the “wilful misconduct” standard in the Regulation, the employee must do something deliberately, knowing they are doing something wrong.... Careless, thoughtless, heedless, or inadvertent conduct, no matter how serious, does not meet the standard. Rather, the employer must show that the misconduct was intentional or deliberate. The employer must show that the employee purposefully engaged in conduct that he or she knew to be serious misconduct.... Wilful misconduct involves an assessment of subjective intent, almost akin to a special intent in criminal law. It will be found in a narrower cadre of cases: cases of wilful misconduct will almost inevitably meet the test for just cause but the reverse is not the case. (Render, para. 79)
... The differing standards at common law and under the ESA are further discussed in a number of cases, as well as in the Ministry of Labour’s Employment Standards Act Policy and Interpretation Manual (2020). The Manual states: “this exemption is narrower than the just cause concept applied in the common law and in collective agreement disputes. (Render, para. 80)
Applying the contextual analysis of ESA wilful misconduct, the Court of Appeal held in para. 81 that Mr. Render's conduct "does not rise to the level of wilful misconduct required" under the ESA as the conduct was not "preplanned", and not wilful and that the touching was "done in the heat of the moment in reaction to a slight", it was "not the type of conduct" intended by the "legislature to deprive an employee of his statutory benefits."
Determining that Mr. Render is entitled to ESA statutory entitlements, the Court of Appeal went on to held in para. 82 that Mr. Render is entitled to "eight weeks of termination pay" under the ESA, but no ESA severance pay as the Court was "not directed to anywhere in the record of evidence" that ThyssenKrupp has a $2.5 million global payroll, , as required under s. 64(1)(b)" of the ESA.
5. Recent Case Development of Termination Terms After Waksdale v Swegon North America Inc.
In terms of contract enforceability of termination provisions, the period spanning 2020 to 2023 represents a watershed moment. Please continue reading to learn more.
a. 2020 to 2021 - Waksdale Test
Following the Court of Appeal decision in 2020 in Waksdale v Swegon North America Inc., 2020 ONCA 391, many termination provisions in employment contracts were invalidated by the Waksdale rule, which states that the termination clause will NOT be enforceable unless the entire employment contract is in line with the Employment Standards Act (ESA).
See e.g. the 4 cases discussed above. Sewell v. Provincial Fruit Co Limited, 2020 ONSC 4406; Lamontagne v. J.L. Richards & Associates Limited, 2021 ONSC 2133; Ojo v. Crystal Claire Cosmetics Inc., 2021 ONSC 1428; Perretta v. Rand A Technology Corporation, 2021 ONSC 2111.
Unfortunately, none of the 2021 cases address this crucial issue: what if the provision that breaches the ESA has nothing to do with termination? Will the invalidity of such terms have any legal repercussions for the agreement's termination provisions?
b. 2022 to 2023 - Dr David Walt Dentistry Professional Corp Test
The question was answered definitively in Gracias v Dr David Walt Dentistry Professional Corp, 2023 ONSC 2052 (Div Ct), aff'g 2022 ONSC 2967.
The Plaintiff, Sonia Gracias, was dismissed without cause from her five-month, twenty-one-day full-time employment as a dental hygienist for the Defendant, Dr. David Walt Dentistry Professional Corporation. On her dismissal, Ms. Gracias was paid her entitlements under the ESA of one-week’s pay in lieu of notice. She sued for wrongful dismissal in Court.
Ruling in favor of the Plaintiff, the Court reasoned that:
At Para. 89 ... employers and employees can rebut the presumption of reasonable notice by agreeing to a different notice period; but their agreement will be enforceable only if it in its entirety complies with the minimum employment standards of the Employment Standards Act, 2000; if the contract does not comply with the Act, then the employee is entitled to reasonable notice of termination.
At Para. 106 The onus is on the defendant to establish a failure to mitigate. More particularly, the onus is on the employer to prove that the employee would likely have found a comparable position reasonably adapted to his or her abilities and that the employee failed to take reasonable steps to find that comparable position. In assessing the innocent party's efforts at mitigation, the courts are tolerant, and the innocent party need only be reasonable, not perfect.
At Para. 118 Ms. Gracias was already looking for a replacement job several weeks before she was dismissed, which says a great deal about how discontented both parties were about her role at Walt Dentistry. She was not a valued employee, and she did not have any management responsibilities. The duration of her employment was less than six months. .... Her efforts at mitigation were reasonable. Balancing the various factors in play in the immediate case, three months is a reasonable notice period.
At Para. 119 With a three-month notice period based on an annual salary of $75,000 and deducting her Employment Standards Act, 2000 payment yields a judgment of $17,587.11 inclusive of prejudgment interest.
The employer Dr. David Walt Dentistry Professional Corporation appealed to the divisional court in Gracias v. Dr. David Walt Dentistry Professional Corporation, 2023 ONSC 2052, and the appeal was dismissed with a cost judgment of $15,000.
Unless a Court of Appeal or a higher Court rules otherwise, the current status of the law in terms of termination clauses is that unless the entire employment contract is flawless in terms of ESA compliance, the termination clauses will be unenforceable.
6. Conclusion
After the Court of Appeal's decision in Render, it's next to impossible for a finding of ESA wilful misconduct absent of the most egregious conducts criminal or at least quasi-criminal in nature.
Going forward it would be extremely surprising to find a case that deviate from the Waksdale Test. The decision in Dr David Walt Dentistry Professional Corp adds another requirement that not only the termination provisions be perfect, but the whole employment contract be faultless in order for the termination terms to be enforceable.
As a precautionary measure, it is suggested that termination for cause be removed from the employment contract, or at the very least confined to termination for wilful misconduct under regulation O. Reg. 288/01 under the Employment Standards Act.
Additionally, it is strongly advised to have an experienced employment lawyer who is familiar with both common law, the ESA, and other relevant employment law statutes review the employment agreement to make sure it is enforceable in terms of termination clauses, so there are no surprises further down the road.
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.
Call us now at 647-849-6582 or Contact Us Now if you have any questions or concerns in related to employment contract, or you want to book an appointment for an employment lawyer consultation.