Attention! Attention! Calling all employers who have employment contracts which set restricted notice terms below the common law. THE COURT OF APPEAL HAS RULED. As of June 17, 2020 , all restricted notice employment contracts are at risk. If there is also a clause in the same contract permitting the employer to “terminate the employee for cause” without notice or pay in lieu of notice, all the termination provisions in the contract will be struck down. ( Many non-unionized employers of modestly paid employees have such contracts.)
The Ontario Court of Appeal has decided that a “ for cause” termination clause sets a lesser standard than the Employment Standards Act. That means negotiating such language is an illegal attempt to contract out of the statutory obligation only to terminate employees without notice for “ wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer“ Those are the ESA grounds found in Ontario Regulation 288/01, s.2 (1) 3 for termination and s.9 (1) 6 for severance pay.
The reason this decision impacts restrictive notice clauses is because the Court held that all termination clauses must be considered together as part of the whole contract viewed at the date of hire. They rejected simply eliminately the “ for cause” section. They refused to apply the traditional clause found in many contracts which said that if any clause was found to be illegal, it would be deemed void and excised from the contract, but not affect the rest of the lawful contract. That clause could not be applied, the Court reasoned, since the termination package was illegal from the start.
The Court properly concluded that during the course of employment, an employee faced with the constant possibility of termination for cause rather than termination only for for “wilful misconduct” would be more wary and constrained at work every day. Thus, they concluded, the clause had broad impact from the beginning of the employment relationship. Therefore, it should not be severed from other termination provisions, which were all implemented at the same time. Since the Court saw all termination provisions as a package, all the termination provisions were improper. All failed .
The decision means essentially every employment contract in Ontario has a problem. It begins with the need to redraft “for cause” clauses because the Court has said they are too broad and represent contracting out from the more restricted grounds in the statute. The new correct “cause” will be “wilful misconduct, disobedience and wilful neglect of duty which is not trivial and not condoned by the employer”. Practically, the change eliminates situations where wilfulness cannot be proven. For example, the chronically ill employee or the employee who tries their hardest but is incapable of performing at a satisfactory level. It will eliminate many of the grounds in contracts that have tried to define “cause” by including a list of offences like possessing Company property, unsatisfactory performance, failure to follow policies and procedures.
By default, all contracts with now voided termination clauses, that set limits on the amount of notice, are at risk. Anything that was designed to reduce common law notice may have been eliminated! That is a “ wow” moment in employment law.
How to fix such a problem will now engage many Company advisors. One imagines that as long-service employees come to learn of this legal windfall, many may be reluctant to agree with their employers to correct the defect. The Policy approach for every Company impacted needs to be thoughtfully considered.
Congratulations to Phil White and Jason Wong, the legal advocates for plaintiff Waksdale. Your result will have more than the defendant, Swegon North America, wondering about their future. This case has the potential to change the ground rules significantly. All those drafting and negotiating employment contracts from this day forth , beware. Legal advice is required.