Ontario Employers should revisit all employment contracts or risk costly legal settlements.
Less than a year ago, in June 2020, employers were left shaken by the ground-breaking Ontario Court of Appeal decision in Waksdale v. Swegon North America Inc. (“Waksdale”). Waksdale held the entire termination clause in an employment contract is rendered unenforceable if there is an unenforceable “for cause” termination provision, and a severability clause did not operate to save it. On January 14th, 2021, an application to appeal the decision was refused by the Supreme Court of Canada and dismissed with costs. Ontario employers have no possible reprieve from the ramifications of this decision.
Given the Supreme Court of Canada’s refusal to grant leave to appeal, Waksdale remains the law in Ontario. It has already been followed by the Superior Court in Sewell v. Provincial Fruit Co. Limited, 2020 ONSC 4406 (CanLII) (“Sewell”), where a “termination for just cause provision” nullified the entire termination clause, including the termination without cause provision. The result entitled the employee to common law reasonable notice instead of what was agreed, the minimum under the Employment Standards Act, 2000, SO 2000, c 41, (“ESA”), in their employment contract.
What does this mean for employers?
The Waksdale and Sewell decisions can lead to costly consequences for employers. First, the common law reasonable notice periods are much longer than the ESA minimums, or what parties might agree in their employment contracts. This can make severance payments much more costly, and entirely unanticipated if contracts are not revised. During the pandemic and its aftermath, severance can become a vital issue for many businesses since employment termination may be unavoidable. It can mean the difference between surviving as a business and floundering or failing. Having an employment contract in place with ESA minimum termination clauses that has not taken into account the holding in the Waksdale decision, rendering them unenforceable, could turn 10 weeks of termination pay into 10 months owed.
The other factor for employers to consider is that the length of the common law reasonable notice period is much less predictable than an agreed upon number, especially when the court has to consider the unprecedented effects of the pandemic. Will courts award longer notice periods due to the pandemic and economic conditions in certain industries? The unpredictability and uncertainty may lead to disputes and legal costs even if the parties agree that the employees are entitled to common law reasonable notice. For example, an employer may think the reasonable period should be 10 months, while their employee may ask for 15 months. Costly legal fees are unavoidable in this situation, even if the employer concedes that the employee is entitled to common law reasonable notice.
Before the Waksdale decision was rendered, much less attention was paid to the termination for cause provision since it was rarely relied upon, and was therefore irrelevant when considering whether the termination without cause provision was being considered.
In order to avoid costly legal battles, employers who have not already done so must immediately review their employment agreements. A well-written employment agreement provides certainty that may not only save employers from unexpected severance costs, but also reduce the chances of disputes and legal expenses. To navigate through the delicate process of amending employment agreements, especially for existing employees, employers should seek legal advice from an employment law expert. A misstep could lead to invalid contracts, unintended constructive dismissals, and more. Contact HUM Law today to ensure your employment contracts will remain valid.
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