Enforceability of Termination Clauses and the Latest Blow to Employers in Ontario, Canada
By Marty Rabinovitch, Devry Smith Frank LLP
Termination clauses are often relied upon by Canadian employers to define an employee’s entitlement to notice when their employment is terminated without cause (i.e., without a valid legal reason). These clauses are often drafted to limit an employee’s entitlement to their minimum statutory entitlements, which are significantly less than their common law entitlement. If the termination clause is unenforceable, then the common law will apply.
The Canadian courts, in particular the courts in the province of Ontario, generally dislike termination clauses which seek to limit an employee’s termination entitlement to the statutory minimums. If a termination provision is ambiguous or provides the employee with less than their entitlements under employment standards legislation, then the clause will be unenforceable, and the employee will receive reasonable notice at common law.
In June 2020, the Court of Appeal for Ontario in Waksdale v. Swegon North America Inc. determined that if any part of the employer’s termination scheme is unenforceable, then the entire termination scheme will be void and the common law will apply. Previously, the courts had held that only the offending portion(s) would be unenforceable, while the remaining separate and distinct provisions would remain in force. For example, if the employer’s termination for just cause (with a valid legal reason) provisions are found to be unenforceable, then the termination without cause provisions would also be unenforceable, even if the without-cause provisions would have otherwise been enforceable on their own, and even if the employee was terminated without cause.
It is therefore especially important for Canadian employers to consult with a lawyer to determine whether their current termination language should be amended to ensure that it is compliant with the Waksdale decision.
Marty RabinovitchGGI member firm
Devry Smith Frank LLP
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Devry Smith Frank LLP (DSF) is a full-service law firm based in Toronto, Canada. DSF provides professional and affordable client-tailored servic
Marty Rabinovitch is a Partner and Head of the Employment Law Group at Devry Smith Frank LLP. His practice focuses on representing employers with respect to issues which arise in the workplace. Marty has extensive employment litigation experience and provides legal services to both English- and French-speaking employers.
Published: Labour Law Newsletter, No. 09, Autumn 2020 l Photo: R.M. Nunes - stock.adobe.com