In 2020, the landmark case of Waksdale v Swegon North America Inc. caused a ripple effect in the validity of termination provisions throughout Ontario. The Waksdale decision requires that most employers revise the termination provisions in their existing employment contracts or run the risk that they may be required to provide a terminated employee significantly more money than the minimums required in the Employment Standards Act (“ESA”).
In the Waksdale matter, Mr. Waksdale was terminated on a without cause basis. Within his employment contract, there was termination provisions that considered both termination with cause and without cause. The termination without cause provision provided that the employer would only compensate the employee with the statutory minimum entitlements required by the ESA. Mr. Waksdale was only employed for a period of eight (8) months, therefore the statutory minimum entitlement was one (1) week of pay-in-lieu of notice. Mr. Waksdale brought an action seeking six (6) months common law notice.
Mr. Waksdale conceded that the without cause termination provision in his employment agreement complied with the ESA, however, the clause should not be found enforceable as the termination for cause provision did not comply with the ESA. The Employer brought a summary judgment motion, and the motion judge found that the termination of employment with notice provision is a stand-alone, unambiguous and enforceable clause. Mr. Waksdale appealed this decision.
The Court of Appeal overturned the decision of the Motion Judge and held that the termination provisions in an employment contract will be deemed unenforceable if the wording of any other termination provision in the employment contract contravenes any aspect of the ESA or its regulations. Regardless of the fact that the Employer has terminated the employee without cause or with cause, if one of the termination provisions violates the ESA, the entirety of the termination provisions will be unenforceable and the Employer will be required to pay common law notice (which is significantly higher then the statutory minimums in the ESA).
Following Waksdale, the ripple effect has expanded to federally regulated employers. In the case of Sager v TFI International Inc., the court held that the termination provision was unenforceable and ordered common law notice.
In that case, Mr. Sager was terminated on a without cause basis. Within his employment contract, there was a termination provision which provided that the Employer could terminate without cause by giving Mr. Sager the greater of three month’s base salary or one month base salary per year of completed service to a maximum of 12 months. The amount of notice or payment in lieu of notice surpasses what was required in the statutory minimums of the Canada Labour Code (“CLC”). However, the contract also stated that the payment shall be inclusive of any and all requirements that would be owing to Mr. Sager under the CLC.
Mr. Sager was provided three month’s base salary upon his termination. However, Mr. Sager brought an action claiming that the termination clause in his employment contract is invalid and sought damages for breach of contract and wrongful dismissal. Mr. Sager argued that the termination clause is not enforceable because it failed to maintain the terms of his employment during the statutory notice period, which is inconsistent with the CLC. Therefore, he sought reasonable notice at common law.
Under section 231(a) of the CLC reads: “Where notice is given by an employer pursuant to subsection 230(1), the employer […] shall not thereafter reduce the rate of wages or alter any other term or condition of employment of the employee to whom the notice was given except with the written consent of the employee.” Mr. Sager argued that the termination clause is unenforceable as it relieves the Employer of its statutory obligation to maintain all terms of his employment during his notice period including: pension contribution, continuing benefits, car allowance, vacation pay and paying his bonus.
The Court held that the termination clause intended to limit the Employer’s obligation to one lump sum payment. Further it was held that, if the lump sum payment is treated as inclusive of all requirements under the CLC, it excluded any payment on termination for Mr. Sager’s pension, car allowance, bonus, and continuing benefits which were all terms and conditions of Mr. Sager’s employment. The Judge held, “In my view, the meaning of the agreement is clear: Mr. Sager was entitled to a payment equal to three months of his base salary and nothing more during the notice period. This amounts to a change in Mr. Sager’s terms of employment during the notice period, which is inconsistent with s. 231(a) of the CLC.” The court awarded Mr. Sager common law notice.
These two cases are particularly important for Employers as it can have significant impact on the amount payable to an employee who has been terminated. Generally, common law notice is significantly more costly than the statutory requirements. Employers should regularly speak with their lawyer to ensure the validity of their Employment Contracts.
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