As a mediator, it's frustrating to see time wasted on baseless issues, especially around termination clauses. While many are unenforceable in today’s legal landscape, some still hold. Yet, I frequently see plaintiff's counsel arguing against termination clauses that are clearly valid.
Many Termination Clauses are Invalid
Over my 25 years of practice, I’ve witnessed the pendulum swing back and forth between the enforcement of termination clauses and the protection of employees through their invalidation. In recent years, however, the pendulum has shifted further in favour of employee protection than ever before.
The reality is that the majority of termination clauses I encounter, both as counsel and as a mediator, would likely be deemed unenforceable if challenged in court. A key development in this area was the Ontario Court of Appeal’s decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, which clarified that if the termination with-cause provision has the potential to violate the employment standards legislation, the entire termination clause is rendered unenforceable. In Ontario, this means that if a termination clause allows the employer to dismiss an employee without notice or compensation for "just cause," the clause will likely be unenforceable. This is because Ontario’s employment standards legislation does not recognize "just cause" as a valid reason for dismissal; instead, it specifically refers to "willful misconduct."
The courts have ruled that there are situations where just cause for dismissal may exist without willful misconduct. As a result, a clause that references "just cause" sets a lower standard than the legislation requires, rendering it unenforceable. While this principle initially seemed anomalous, it has since been upheld by the Ontario Court of Appeal in Waksdale.