Jun 19, 2020

Waksdale v. Swegon North America Inc.: Ontario Court of Appeal Strikes Down Another Termination Clause

In this case, Mr. Waksdale was terminated without cause after about eight (8) months of employment. 

Both parties agreed that the “without cause” termination clause in his employment contract was enforceable. Both parties also agreed the “with cause” termination clause was not enforceable.

By way of a summary judgement motion, the employer asked the court to enforce the without cause termination clause, which provided Mr. Waksdale with two (2) weeks termination pay.

Mr. Waksdale claimed that because the “with cause” termination clause was not legally enforceable, the entire termination clause was not enforceable such that he was entitled to common law “reasonable” notice of termination.

The Trial Decision

The motion judge noted the two termination provisions dealt with two different kinds of terminations, and he only considered the enforceability of the without cause clause since Mr. Waksdale was terminated without cause. “It is a stand-alone clause, and is enforceable without reference to the Termination with Cause clause.”…”The Termination of Employment with Notice clause is unambiguous, enforceable, and stands apart from the Termination for Cause clause.”

The Court of Appeal Decision

A three-person panel of the ONCA fundamentally disagreed with the trial judge’s analysis.

“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.”

Lessons to be learned:

  1. Employee lawyers are constantly thinking of new ways to attack the enforceability of termination clauses.

     

  2. Until the Supreme Court of Canada decides on an easy to apply test that allows lawyers to determine whether a termination clause is enforceable, this issue will continue to take up a disproportionate amount of the Court of Appeal’s time.

     

  3. The legal costs incurred trying to figure out whether a termination clause is enforceable can and do exceed the amount of termination pay an employee is entitled to receive. In this case, Mr. Waksdale’s base salary was $ 135 000. Under his contract, he was entitled to 2 weeks termination pay or about $ 5 000. If the motion judge concludes he was entitled to 3 months common law notice, then his damages are about $33 750. The motions judge said the employer’s legal costs were almost $ 27 000, and the employee’s legal costs were about $ 16 000. These amounts do not include the legal costs the parties incurred at the Court of Appeal nor the legal costs associated with the hearing that the Court of Appeal has ordered to determine the amount of pay in lieu of reasonable notice that Mr. Waksdale is owed.
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