Recent Ontario decisions confirm employment agreement’s enforceability depends on whole package
When one says that something is only as strong as its weakest link, that can apply to many different circumstances. In the past couple of years, the Ontario courts have made it clear that this concept applies to employment contracts — they’re only enforceable if each and every little section is enforceable. So one poorly worded provision — a bad apple — will spoil the whole bunch.
Back in 2020, the Ontario Court of Appeal — in what has become a leading case for the enforceability of employment contracts, Waksdale v. Swegon North America — stated that an employment agreement must be interpreted as a whole and not on a piecemeal basis. This meant that if any part of the agreement breached employment standards or other legislation, the entire agreement was basically void.
The appeal court’s justification for this position was the power imbalance between employee and employers, leaving employers — considered to have the greater power in the relationship — under scrutiny for making sure that they aren’t trying to dupe employees out of their statutory protections.
In that 2020 decision, the element at issue was one of the contract’s termination clauses. The court determined that because the one clause was unenforceable due to noncompliance with employment standards legislation, none of the other clauses, termination or otherwise, where valid either. The whole agreement was tossed out.
Later that same year, the Ontario Superior Court of Justice followed this approach by invalidating an employment agreement that included a provision allowing the employer to terminate an employee’s employment without cause with a payment or “at the company’s option” notice or pay in lieu of notice representing termination and severance pay. The court found that provision unlawfully combined notice and severance and also contracted around the statutory requirement to provide notice except where an employee engages in “wilful misconduct.” As in Waksdale, the entire employment agreement was deemed unenforceable.
Read more: Waksdale was one of the significant employment law decisions early in the pandemic
Different standards for denial of severance pay
That concept of wilful misconduct has been a scourge of employment contracts since. It’s a phrase in the Ontario Employment Standards Act and its regulation that provides the only exception to terminated employees getting statutory termination and severance pay. And it’s a standard that’s different to the common-law just cause standard — which means that a termination clause stating that an employee dismissed for cause gets nothing is likely to be in breach of the law.
This happened in another case decided by the Ontario Court of Appeal, in which a provision stating that the employer had the right to terminate a worker’s employment “at any time and without notice or payment in lieu thereof, if you engage in conduct that constitutes just cause for summary dismissal.” That, of course, did not meet the statutory requirement of wilful misconduct in order to deny all severance pay, so the provision — and, by extension, the entire agreement — was unenforceable.
An interesting element in the above case is that the lower court initially determined that the agreement was enforceable because the employee was sophisticated and had been represented by legal counsel in drawing up the agreement, so it could be implied that their intentions had been to enshrine a standard below the statutory wilful misconduct standard. However, the appeal court disagreed, stating that the language of a provision determines its enforceability, not the circumstances in which it was negotiated.
While termination provisions are often the reason employment agreements are voided, other provisions can mess things up too, particularly if they contemplate scenarios where an employee would be let go.
Just recently, the Ontario Superior Court of Justice invalided a contract’s termination provision because of a conflict-of-interest provision and a confidential information provision. Both indicated that breach their provisions would result in termination of employment, but the court found them to be too broad and ambiguous, with no clarification of what constituted wilful misconduct.
One bad clause invalids the rest
The common thread of all of these cases — and any circumstances where a termination clause is unenforceable — is that it can make terminating employees much more expensive. Terminated employees are entitled to not just statutory minimums, but also common-law reasonable notice, which can be significantly more. Termination provisions in employment agreements can reduce that entitlement, but if they are found to be unenforceable, they might as well not exist.
Ontario courts have spoken — it doesn’t matter what the intentions of the parties are, how sophisticated an employee may be, or what other termination clauses may say — if any clause breaches or may potentially breach employment standards, that one bad apple will spoil the entire agreement.
