Court Finds Termination Clause Unenforceable for Violating ESA
Earlier this year, the Ontario Court of Appeal issued the much-discussed decision Waksdale v. Swegon North America Inc. (“Waksdale”), in which it established that where one part of a termination provision violates employment standards legislation, all parts of the termination provision are unenforceable.
That reasoning was recently applied in another Ontario employment decision, as set out below.
The employee began working for the employer in a senior sales role in October 2018. His total annual compensation was $126,200 and he was eligible to receive a discretionary bonus of 10% and 15% of his salary.
The employee signed an employment contract that included the following termination clause:
“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.”
The employee was terminated without cause on April 17, 2019. The employer paid him two weeks’ salary and benefits (approximately $4,853 minus statutory deductions), consistent with the employment contract and the requirements of the Employment Standards Act, 2000 (“ESA”).
The employee was able to obtain a new job with an annual salary of $92,000 around August 9, 2019.
The employee brought a motion for summary judgment to determine the notice payable as a result of his termination by the employer. The employee sought, among other relief, a declaration that he was wrongfully dismissed, a declaration that the termination provision set out in the employment contract was null, void, and unenforceable, and a declaration that the employer breached an implied term of the employment contract which required reasonable notice. Additionally, the employee asked for damages in the amount of $84,133, representing eight months of income payable during the period of reasonable notice, as well as damages in the amount of $18,930, representing the bonus the employee would have received.
The employer submitted that the employment contract between the parties was enforceable such that no damages were owed. In the alternative, its position was that a common law notice period of three to four months was reasonable.
Court Finds in Favour of Employee
Citing the Waksdale decision and other case law, the court noted it must exercise its 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 held that the contract at issue violated the ESA for two reasons.
First, the court found that a plain reading of the contract supported the employee’s argument that it combined notice and severance pay entitlements in violation of the ESA requirement to pay both notice and severance.
Second, applying Waksdale, the court foundthat 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.” The court stated:
“Based on the Court of Appeal’s reasoning [in Waksdale], 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.
Based on this analysis, the employment contract is void and the plaintiff is entitled to common law reasonable notice.”
Having found that the employment contract violated the minimum standards set out in the ESA and was therefore illegal and unenforceable, the court then set out to determine the length of notice owed to the employee.
The court explained that it must consider the following factors in making such a determination:
- the character of the employment;
- the length of service of the servant;
- the age of the servant; and
- the availability of similar employment, having regard to the experience, training and qualifications of the servant.
After reviewing the factors as they applied to the employee, the court found that he was entitled to four months of common law notice, plus benefits and minus two weeks of mitigation.
However, the court declined to award damages in relation to the bonus, finding that the corporate bonus program was entirely discretionary and the employee would not have received a bonus given the concerns about his sales performance.
In the result, the court found in favour of the employee and set his damages at$35,356. Additionally, the court found that the employee was entitled to $20,000 in costs.
The Kitchener-Waterloo employment lawyers at Petker Campbell Postnikoff have many years of experience advising non-unionized employees and employers on a variety of workplace issues, including harassment and termination. Our team will walk you through the details of your dispute, advise you on your rights, responsibilities and obligations, and help you understand your options. If your dispute cannot be settled through negotiation, we can represent you through mediation and the court process.
We represent clients throughout southern Ontario, including the communities of Cambridge, Guelph, Elmira, Brantford, Fergus, Elora and the surrounding area. Call 519-886-1204 or contact us online for a consultation.