References to Cause Invalidate Employment Agreement in Ontario

In 2020, the Ontario Court of Appeal in Waksdale v. Swegon North America Inc. ruled that, in Ontario, if any part of an agreement’s termination provision could be contrary to the Ontario Employment Standards Act, 2000, then the whole termination clause is invalidated, irrespective of whether the contract has a “severability” clause i.e. one stating the invalidity of part of the agreement does not affect the rest.

In the recent case of Henderson v. Slavkin et al., 2022 ONSC 2964, the plaintiff had a written agreement with termination provisions that were compliant with the ESA. However, the confidentiality and conflict-of-interest clauses both stated that a breach of either term would constitute “cause” and entitle the employer to terminate without notice or compensation in lieu. The court ruled that a breach of either the confidentiality or the conflict-of-interest clauses may not reach the standard of willful misconduct or willful neglect of duty required to terminate without notice or compensation under the ESA. For that reason, both clauses were void and, by virtue of Waksdale, the otherwise compliant termination provisions were invalidated. The ruling is difficult to understand given it would be highly unlikely a breach of either clause would be accidental or unintentional.

Takeaways

Ontario employers (and their counsel) have continued to struggle with drafting employment agreements in the wake of Waksdale and this cases signals their travails are not over yet. This decision says defining termination for “just cause” as the consequence of a breach of an employee’s obligation makes it part of the termination clause thus subject to Waksdale review. It also confirms the Ontario courts will not apply common sense in interpreting such consequences as only applicable to cases of intentional (“willful”) breaches i.e. breaches that would meet the ESA standard for termination without notice or compensation.

If they have not already done so Ontario employers should review their employment agreements to try to Waksdale-proof them. This now means not just focusing on the termination clause per se but also any other clause where termination is mentioned.

If you want more information on this topic, or require our assistance reviewing your employment agreement(s), you can contact us at:

Geoffrey Howard:      ghoward@howardlaw.ca

604 424-9686

Sebastian Chern:         schern@howardlaw.ca

604 424-9688