Employers should be aware that Ontario courts have begun to follow a notable Court of Appeal decision that we wrote about in June (see “ONCA Rejects Termination Clause Due to Non-Compliance with ESA”).

The Court of Appeal decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391 set aside an employment contract and its termination provision. Waksdale, which is currently being appealed to the Supreme Court of Canada, found that an employment agreement’s “without cause” termination provision is rendered unenforceable when the employment agreement also contains a “just cause” provision that contracts out of minimum standards legislation.

Now, in Sewell v. Provincial Fruit Co. Limited, 2020 ONSC 4406, the Ontario Court of Justice has applied the same reasoning laid out by the Court of Appeal in Waksdale.

Summary Judgment Motion

In Sewell, an employee was employed by the employer produce importer in a senior sales role from October 2018 until April 2019. His total yearly compensation was $126,200 and he was eligible to receive a discretionary bonus. He brought a summary judgment motion to determine the notice payable that resulted from his termination.

The employee signed an employment contract that included a termination clause that said:

b) Termination by the Company for Just Cause

The Company is entitled to terminate your employment at any time and without any notice or any further compensation for just cause and the Company will not have any further obligations to you whether at contract, under statute, at common law or otherwise.

c) Termination by the Company without Just Cause

(A) The Company will be entitled to terminate your employment at any time without just cause by providing you with the following:

(ii) a payment, or at the Company’s sole option, notice or combination of notice and pay in lieu of such notice representing termination pay and, if applicable, severance pay, as may be required under the Employment Standards Act, 2000, as amended from time to time (the “Separation Period”);

It is agreed that upon compliance with the above provisions, the Company will be release from any and all obligations to you, whether statutory, under contract, at common law or otherwise.

Violation of Minimum ESA Standards

The employee was terminated without cause and was paid two weeks’ salary and benefits, consistent with the employment contract and the Employment Standards Act (ESA) requirement. He mitigated his damages when he accepted a new position in August 2019 that paid $92,000.

According to the Court of Justice’s reasons, the employment contract violated the minimum standards set out in the ESA and was therefore illegal and unenforceable. Relying on Waksdale v. Swegon North America Inc., Wood v. Fred Deeley Imports Ltd., and Rossman v. Canadian Solar Inc., Justice Renu Mandhane wrote:

“These cases make it clear that courts should exercise their discretion in favour of protecting employees and must look at the employment agreement as a whole, over its entire expected duration, to determine whether it satisfies the minimum requirements of employment standards legislation.”

The court found that the contract at issue violated the ESA for two reasons:

  1. Notice and severance pay entitlements were combined, which violated the ESA requirement to pay both notice and severance;
  2. Applying Waksdale, the “termination for just cause” provision of the contract was illegal since it contracted around the ESA requirement to provide notice except in cases where an employee engaged in “willful misconduct.” Based on the reasoning in Waksdale, the contract must be read as a whole and set aside if one or more of the terms are illegal, even if the offending term is not at issue in this case.

Based on this analysis, Justice Mandhane ruled that the employment contract was void and the plaintiff was entitled to common-law reasonable notice. She awarded damages equivalent to four months of notice plus applicable benefits, less the amounts already paid and less what was earned during the notice period in mitigation of his damages. Damages owing came to $35,356.19 plus interest and the plaintiff was awarded $20,000 in costs.

Ensure Compliance with ESA Requirements

It’s hoped that the Supreme Court of Canada will rule on the Waksdale decision and clarify what employers need to know when creating employment agreements.

For now, employers should ensure that all termination provisions in employment agreements, including just cause and for clause provisions, comply with the Employment Standards Act. Employment agreements should be reviewed to determine whether they are affected by these decisions.

For advice on employment agreements and all other employment or labour law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.