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A new hurdle to enforcing termination clauses in employment contracts? The Ontario Court of Appeal’s decision in Waksdale v. Swegon North America Inc.

3 minute read

The COVID-19 pandemic has created a constantly-shifting landscape in employment law. Between temporary layoffs and terminations, wage increases and reductions, and business restrictions and closures, employers and employees (and their lawyers) have been kept on their toes. Add to this the changing government regulations[1] and I found myself wondering how things could possibly change any more in such a short period of time.

Then, as if right on cue, the Court of Appeal for Ontario released its decision last week in Waksdale v. Swegon North America Inc.[2] The decision is short, but appears to have changed the law in a way that could impact employers and employees across Ontario. And, it has nothing to do with the pandemic.

Instead, the decision pertains to the validity of termination provisions in employment agreements. There are, generally speaking, two types of provisions: those that govern terminations for cause, and those that govern terminations without cause. The validity of termination provisions is an often-litigated issue, because they can be difficult to draft in a way that complies with the minimum requirements set out in the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”). This is especially the case for termination without cause provisions, which have been the subject of recent scrutiny from the Court of Appeal.[3]

Until last week, the understanding from prior case law was that the validity of the two types of termination clauses would be evaluated independently. In other words, where a termination for cause provision was invalid because it violated the ESA, the termination without cause provision in the same contract could still be valid so long as it, on its own, complied with the ESA.[4] The Court of Appeal’s decision in Waksdale says the opposite: “[t]he correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA.”[5] Where a termination for cause provision is invalid, so too is the termination without cause provision, even if the latter complied with the ESA on its own. The court held that it is “irrelevant” whether the clauses are in the same part of the contract or are otherwise linked, or which termination provision is being relied upon in any given case. The court also declined to give effect to a severability clause.

The result in Waksdale was that an employee terminated without cause was entitled to common law damages in lieu of reasonable notice because the termination with cause provision in his contract violated the ESA. This is despite the fact that the termination without cause provision, which is what his employer relied upon in terminating him, would have limited his entitlements in a manner that did not violate the ESA. Since one clause was invalid, the employer could not rely on either. Based on the court’s finding, the matter was returned to the court below to determine the quantum of damages. The difference between the ESA minimum entitlements and common law entitlements in any given case can be significant.

This decision could have sweeping implications for employers and employees alike. Employers should revisit the termination provisions in their employment agreements and obtain legal advice to ensure they are valid. Employees who are terminated should consult with a lawyer for advice about their rights and entitlements.

[1] See the latest on this from my colleague, Rebecca Shoom, here.

[2] 2020 ONCA 391.

[3] See, for example, Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679 and Rossman v. Canadian Solar Inc., 2019 ONCA 992.

[4] Khashaba v. Procom Consultants Group Ltd., 2018 ONSC 7617.

[5] Waksdale at para. 10.

Jane Scholes

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