Termination Provisions - A Legal Update 2

*Written by Hannah Goranson

In our previous blog post, Termination Provisions - A Legal Update, we discussed the importance of having an enforceable termination provisions in an employment agreement. In this follow-up post, we discuss the most recent trends and developments in the case law on this significant topic.

The Ontario Court of Appeal recently released two decisions on the interpretation of termination provisions. In each case, the Court of Appeal emphasized that termination provisions must comply with the minimum standards outlined in Ontario's Employment Standards Act ("ESA"). Any termination provisions that attempt to provide less than the ESA minimum standards will be void and unenforceable.

In both cases, the issue was whether the employer's termination without cause provision complied with the ESA.

Rossman v. Canadian Solar Inc., 2019 ONCA 992:

On December 17, 2019, the Court of Appeal found the termination provision void and unenforceable in the case of Rossman v. Canadian Solar Inc., 2019 ONCA 992.

The termination provision stated that the employee's benefits would cease 4 weeks after termination. The provision also included "saving language" that stated that if the ESA provided for any greater rights or entitlements, those requirements would replace the notice or payments outlined in the termination provision.

The employee argued that 4 weeks of benefits did not comply with the ESA minimum requirements, as the ESA could require benefits to be provided for up to 8 weeks following termination. The employer argued that the "saving language" remedied any potential breach, and the termination provision was thus enforceable.

The Court agreed with the employee. The provision was void. The "saving language" could not save a termination provision that directly conflicted with the ESA.

Waksdale v. Swegon North America, 2020 ONCA 391:

On June 19, 2020, the Court of Appeal held that the termination provision was void for breaching the ESA in Waksdale v. Swegon North America, 2020 ONCA 391.

In this case, the employment agreement contained two separate and distinct termination provisions: one for termination for cause and one for termination without cause. The employer conceded the termination for cause provision was unenforceable for breaching the ESA, but argued that the stand alone termination without cause provision was valid and enforceable.

The Court of Appeal disagreed with the employer. Both termination provisions were unenforceable.

The Court of Appeal emphasized that employment agreements must be interpreted as a whole and not on a piecemeal basis. The correct approach is to determine whether the termination provisions, when read together, violate the ESA. It is irrelevant whether the termination provisions are found in one place or otherwise linked.

When read together, the illegality in the termination for cause provision infected the otherwise valid termination without cause provision. As a result, the employer could not rely on either.

The Court of Appeal also held that the termination provisions could not be saved by a severability provision. A severability provision will not save termination provisions that are void for contracting out of the ESA.

Key Takeaways:

These recent decisions clarify that the Court of Appeal is taking a stringent approach to termination provisions. Employers must draft termination provisions that comply with the ESA. Any illegality in any termination provision puts all the termination provisions at risk of being void.

In light of these decisions, employers should do a critical review of their employment agreements. Any outdated or ambiguous language may result in the termination provisions being unenforceable. As always, employers are encouraged to speak with their employment lawyer when reviewing employment contracts.

On the flip side, employees should seek legal advice prior to accepting any termination or severance packages. Employees may have greater entitlements on termination than outlined in the termination provisions of their employment agreements.

Lee Workplace Law as extensive experience in employment matters and can help.