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 14^th, 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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Editors Note: On September 3rd the Ontario government issued a press release changing the date and extending the suspension until January 2021. 

Ontario’s Reopening Ontario (A Flexible Response to COVID-19) Act, 2020 (the “Act”) came into effect on July 24, 2020 and the Declared Emergency ended on the same day.

The new regulation under the Employment Standards Act, 2000 (ESA) deemed an employee to be on a job-protected Infectious Disease Emergency Leave when the employer has temporarily reduced or eliminated their hours of work because of COVID-19.  The regulation affects how the termination, severance and constructive dismissal rules under the ESA apply during the COVID-19 period.  These temporary rules will expire six weeks after the Declared Emergency ended, i.e. on September 4, 2020.  They do not apply to employees represented by a trade union.”

This has set off a chain reaction for most employers and could very well trigger costly severance and termination obligations. Employers are strongly encouraged to review all  employee contracts with an experienced employment lawyer to protect the interests of all involved, there are a number of major changes employers should be aware of including the recent  Waksdale decision from  the Ontario Court of Appeal.

Although many emergency orders remain in effect, Section 17 of the Act defines a new stage in the pandemic trajectory by terminating the COVID-19 Declared Emergency in Ontario. The termination of the Declared Emergency has a direct impact on both the Declared Emergency Leave (the “DEL”) and the Infectious Disease Emergency Leave (the “IDEL”). With everything that employers need to consider for reopening regarding health and safety measures, it can be easy to ignore employment law issues until there is a problem. However, in doing so, employers leave themselves open to costly lawsuits and reputational issues.

Understanding the DEL and the IDEL

Declared Emergency Leave (the “DEL”)

The DEL entitles employees to “an unpaid, job-protected leave of absence” for various reasons during a declared emergency. Once a Declared Emergency has been terminated, employees are no longer entitled to the leave after the date that the emergency is terminated. The only exception is when an order made under s. 7.0.2 of the Emergency Management and Civil Protection Act (“EMCPA”) that applies to the employee is extended beyond the duration of the declared emergency.

When an employee can no longer rely on the DEL, the employee may still be entitled to another similar situational leave such as sick leave, family responsibility leave, family caregiver leave, family medical leave, critical illness leave, bereavement leave, or infectious disease emergency leave.

When a leave is not available to an employee to deal with a situation caused by COVID-19, employers still have a duty to accommodate. For example, an employee may have difficulties putting their kids into day-care due to their limited capacity. Employers may need to accommodate the employee’s need to take care of their children by offering alternative options.

Infectious Disease Emergency Leave (the “IDEL”)

Under this temporary rule, “a non-unionized employee whose employer has temporarily reduced or eliminated their hours of work because of COVID-19 is deemed to be on a job-protected IDEL.” The IDEL expires six weeks after the Declared Emergency ends. In this case, the six-week period will end on September 4, 2020. After the six-week period, the employee will no longer be deemed on leave. In this situation, you have three ultimate options as an employer – to call back the employee, to terminate the employee and end your relationship, or you can lay off your employee, which leaves the door open for a return to work.  Effective September 4, 2020, the temporary layoff rules start again.

As of September 4, 2020, the employer must call the employee back to work, or the employee could claim constructive dismissal unless there is a written contract or internal policies allowing temporary layoffs.

Unlike the DEL, the IDEL remains effective until September 4, 2020, six weeks after the termination of the Declared Emergency in Ontario

What this means for employers

Most businesses are entering into uncharted territory as the economy reopens. Employers are responsible for keeping up to date with legislative changes and the legal ramifications if those changes are not adhered to. Regarding employment contracts, the COVID-19-related changes, in addition to the recent game-changing Waksdale decision invalidating many termination clauses, has made well-drafted contracts a necessity. Relying on outdated, vague, and template contracts will leave many employers in a difficult situation resulting in costly termination payouts. All employers must consult an experienced employment lawyer and be prepared make immediate changes to contracts.

With the frequent changes related to COVID-19, both employers and employees need to understand their rights. If you are unsure how Ontario’s Reopening Ontario (A Flexible Response to COVID-19) Act, 2020 affects you, contact Hum Law Today.