Ontario Courts Continue to Strike Down Termination Clauses: Check Your Employment Agreements Again
Regular readers of our Alerts will recall that since the 2021 Waksdale decision* of the Ontario Court of Appeal (OCA), Ontario judges have declared “open season” on termination clauses, striking them down for a variety of reasons which go much further than Waksdale itself. With the recent decision in Dufault v Township of Ignace, 2024 ONSC 1029, which struck down a termination clause on several grounds, we thought it was timely to recap some of the ways Ontario courts have been extending the scope of Waksdale.
In Waksdale, the OCA found that because some of the various categories of conduct defined as just cause in the termination clause would not meet the higher statutory standard for “firing” employees under the Ontario Employment Standards Act (OESA), the entire termination clause, including the “without cause” clause were invalidated. Notably, the OCA refused to give effect to the “severability” clause in the relevant Employment Agreement, which is expressly designed to avoid invalidity of one clause affecting the balance of the Agreement.
In the wave of trial decisions delivered in the wake of Waksdale, the following have been held grounds for invalidating the “without cause” termination clause:
- Simply adopting the common law standard of “just cause” without expressly allowing for possible entitlement to OESA termination amounts where the grounds of just cause do not meet the higher OESA standard of “willful” misconduct or neglect of duty;
- Stating in other parts of an Employment Agreement that breach of a rule or provision would automatically be just cause for dismissal. Judges have ruled that, because in some situations, a conceivable breach of the particular rule or provision might not meet the OESA standard for firing, the clause infringes the OESA. Then following the Waksdale leap of logic, instead of only striking down the offending provision, the court then strikes down the without cause termination clause;
- In Dufault, wording in the “without cause” clause to the effect that the employer could terminate without cause “at its sole discretion” and “at any time” was found to imply that the Employment Agreement was trying to enable termination in breach of other protections in the OESA and other employment statutes such as the Human Rights Code. This ruling flies in the face of the well-established principle in the law of illegality of contracts that unless the contract provision clearly allows or mandate something contrary to a statute does the clause get invalidated. Nothing in the words “at its sole discretion” actually says the employer can terminate as a form of discrimination, prohibited retaliation or other “illegal” ground for terminating an employee. Dufault contradicts an earlier, better reasoned decision in Henderson v Slavkin 2022 ONSC 2964 which rejected a similar argument on that basis.
The sweeping scope of these post-Waksdale decisions means that even an Employment Agreement your organization may have updated with legal advice after Waksdale may need to be reviewed again to consider amendments. For those readers using a HEL template Employment Agreement in Ontario, we continue to believe the template post-Waksdale termination clause is likely valid but these decisions mean you probably need us to review the entire Agreement again. Unfortunately, it appears some Ontario judges are always going to refuse to enforce contractual termination clauses, despite the most careful drafting.
The only good news for employers is that, so far, the Waksdale approach has not caught on in other provinces to any significant degree.
*See our earlier Alert on the seminal Waksdale decision: https://howardemploymentlaw.ca/ontario-employers-need-to-update-termination-clauses-in-their-employment-agreements/
If you have any questions or would like any assistance regarding this topic, you can contact us at:
Geoffrey Howard: ghoward@howardlaw.ca
604 424-9686
Sebastian Chern: schern@howardlaw.ca
604 424-9688
