Coles Notes: If you are an employer in Ontario with written employment contracts, you almost certainly need to have them updated, as soon as possible. The risk is that your “notice of termination” provisions are, due to a recent court decision, no longer enforceable and any decision to terminate employment will potentially have an increased requirement to provide notice.
Employment relationships in Ontario are regulated by the Ontario Employment Standards Act, (ESA) as a baseline of requirements. In addition to having to comply with those regulations, the relationship has a contract of other terms, which can be either in writing or not. If you have a written contract with *enforceable* terms around termination of the relationship, the written contract will provide the framework. For example, the contract may say that the employer needs to provide the employee with only the notice and other benefits required by the ESA. Alternatively, the written contract may provide that the employer must provide a set amount of notice (in weeks or months) per each year of employment, along with any other requirements of the ESA.
If the termination terms are not enforceable for any reason, the “common law” (or decisions made by judges over the years) steps in to determine how much notice an employer should provide to an employee when terminating employment. Over the years, the courts have found many reasons to invalidate termination provisions in written contracts, exposing employers to providing far more notice to an employee than the employer felt they had bargained for in the contract.
That brings us a 2020 judicial decision which has had the effect of making the vast majority of written contract termination terms unenforceable. In response, all of these contracts should be revised to use language that the Courts are more likely to enforce.
Understanding Requirements: Notice of Termination of Employment
In early 2020 the Ontario Court of Appeal delivered a decision in Waksdale v. Swegon North America Inc. (Waksdale). Despite the clear impact of the decision, the Supreme Court of Canada in a surprising turn of events refused to hear Swegon North America Inc.’s (Swegon) appeal, meaning that the Waksdale decision is (for now) the final word on the contract language it ruled upon. This decision impacts employers and the potential amount of notice or pay in lieu of notice they are required to provide to their employees should they decide to terminate their employment.
ESA Minimum Notice of Termination
To understand the importance of this case, we need to return to the basics of what is required when any employer terminates an employee’s employment in Ontario. As noted above, the ESA steps in to set “minimum” amount of notice (or pay in lieu of notice if the employee is not going to continue working through the notice period). Roughly speaking that notice is one week per year of service up to a maximum of 8 weeks (with some special rules) and there is an additional “severance” requirement for qualifying employees. There is a tool to help employers calculate here.
Additional Notice
However, the ESA provides for only the minimum amount of notice which can be provided. Through the years judicial decisions have developed which indicate that the minimum amount of notice is not sufficient and additional notice (or pay in lieu of notice) must be provided – in some cases that can be up to a month for each year of employment, or more. To curb this uncertainty, employers and employees may agree in advance to how much notice is required, and that is where the importance of a written employment contract comes in. In a written employment agreement, the employer and employee can limit the amount of notice to be provided to the ESA minimum (it cannot be reduced below the ESA minimum) or can agree to an amount of notice greater than the ESA minimum, but still establishing some certainty for both sides of the relationship.
Over recent years, Ontario courts have delivered numerous decisions on “termination clauses” in employment contracts and have made it clear that if very precise language is not used, then those terms of the contract will not be enforceable, and the “common law” will apply once again. This means that an employer who believes that they have limited notice to the ESA Minimum in their employment contracts may in fact not have that certainty at all. This causes a lot of uncertainty for employers.
The Impact of “Waksdale”
Which brings us to the importance of the recent Waksdale case. In that case, the contract of employment had, as is common, two terminations clauses. One clause contemplated termination “without cause” – and providing notice of termination. The second clause was a “for cause” termination, such a clause is generally used by employers where the employee has engaged in misconduct and no notice is necessary.
Despite the fact Mr. Waksdale was terminated on a “without cause” basis and was provided notice, the court found both of the termination clauses void because the termination “for cause” provisions were found to be contrary to the ESA. The court found that, regardless of whether termination clauses are presented jointly or separately in a contract of employment, they must in their whole comply with the ESA minimum entitlements or such clauses run the risk of being found unenforceable. As a result, Mr. Waksdale was entitled to reasonable notice at common law and the court of appeal returned his case to the initial judge for the calculation of his damages and costs.
The language in the “for cause” termination section of the contract was language which was fairly standard “for cause” language in many contracts in Ontario, but the court found that it was too broadly worded and exceeded what was acceptable “for cause” termination under the ESA. This decision by the Ontario Court of Appeal was a significant change and has such far reaching consequences that many lawyers in Ontario expected the Supreme Court of Canada would hear an appeal of the case and provide further guidance. With the SCC refusing to hear Swegon North America Inc.’s appeal of the Waksdale decision, they have effectively, for now, established a new law for termination clauses in employment contracts in Ontario.
What does this mean for Ontario Employers?
The Waksdale case is now the law in Ontario, which means employers should ensure that the termination clauses in their employment contracts comply with the minimum entitlements of the ESA or else they run the risk of being liable at common law for reasonable notice of termination. As discussed above, this can mean significantly higher notice requirement.
Unfortunately, in striking out the existing language in the Waksdale contract, the Ontario Court of Appeal indicated that the language used was not acceptable, but they did not indicate what language would be acceptable. We expect that there will be further decisions to come on this point, but in the meantime, we are recommending extremely limited language around “for cause” terminations.
How Can Momentum Help?
This should be considered a high priority item for all employers in Ontario. Momentum can review and update your existing employment contracts and walk you through the process for implementing the new employment agreements. Note, to be enforceable, a new employment agreement with existing employees must be introduced in a particular way.
You can book an employment agreement review session by clicking the button below.