Ontario Court of Appeal Says Just Cause Clause Offends ESA and Voids Entire Termination Clause and Not Saved by Severability Clause:

In a short and punchy decision  called Waksdale v Swegon North America ( 2020 ONCA 391 which was released on the same day as I am writing this blog ) the Ontario Court of Appeal had a two part termination provision in an employment contract.

The first part said that if you were terminated for just cause , you get nothing. The Employer conceded that this was illegal because the ESA has a higher test for when you gets nothing and thus that clause was illegal . That is old news. Nothing special so far .

The second, separate clause had a perfectly legal if you are fired without cause all you get is the ESA minimums.

The Plaintiff was terminated without cause.

At the trial level the Judge   said that because they are different paragraphs, the illegality of the one clause does not affect the legality of the other clause.

This always struck me as a meaningless distinction. The Court of Appeal agreed with me .

This is what they said:

[9]          In the present case, there is no question that the respondent would not be permitted to rely on the Termination for Cause provision. The issue is whether the two clauses should be considered separately or whether the illegality of the Termination for Cause provision impacts the enforceability of the Termination of Employment with Notice provision. The respondent submits that where there are two discrete termination provisions that by their terms apply to different situations, courts should consider whether one provision impacts upon the other and whether the provisions are “entangled” in any way. If they are not, the respondent argues, then there is no reason why the invalidity of one should impact on the enforceability of the other. 

[10]       We do not give effect to that submission. An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. Recognizing the power imbalance between employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESArights. While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal.  In conducting this analysis, it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked. Here the motion judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.

[11]       Further, it is of no moment that the respondent ultimately did not rely on the Termination for Cause provision. The court is obliged to determine the enforceability of the termination provisions as at the time the agreement was executed; non-reliance on the illegal provision is irrelevant.

[12]       The mischief associated with an illegal provision is readily identified. Where an employer does not rely on an illegal termination clause, it may nonetheless gain the benefit of the illegal clause. For example, an employee who is not familiar with their rights under the ESA, and who signs a contract that includes unenforceable termination for cause provisions, may incorrectly believe they must behave in accordance with these unenforceable provisions in order to avoid termination for cause. If an employee strives to comply with these overreaching provisions, then his or her employer may benefit from these illegal provisions even if the employee is eventually terminated without cause on terms otherwise compliant with the ESA.  

Having lost that argument, the Defendant tried to rely on a sever ability clause.

Nope, says the Court.

14]       We decline to apply this clause to termination provisions that purport to contract out of the provisions of the ESA. A severability clause cannot have any effect on clauses of a contract that have been made void by statute: North v. Metaswitch Networks Corporation, 2017 ONCA 790, 417 D.L.R. (4th) 429, at para.

44. Having concluded that the Termination for Cause provision and the Termination of Employment with Notice provision are to be understood together, the severability clause cannot apply to sever the offending portion of the termination provisions.  

This case will have a monumental effect because almost every  termination clause that that I have ever read has the typical just cause clause.

Moreover this will not just affect ESA termination clauses but every  single termination provision in Ontario. In other words, even if the termination provision said you get 3 weeks per year  of service with a maximum of 52 weeks, but it also had the just cause clause, the employee would be entitled to common law reasonable notice.