Employment Contracts Under Attack!: Waksdale v Swegon North America is Stirring things Up

By: Joel Fairbrother

Published: 9 April 2021

Why Employment Contracts are Under Attack

In the world of employment law, legal counsel like us at Bow River Law are always coming up with new lines of attack to get around problematic clauses in employment contracts. Some such clauses purport to limit severance (reasonable notice) to dismissed employees and can have very harsh consequences for those employees. Judges, aware of those harsh consequences, will often be inclined to read the clauses in a manner that is most favorable to the employee, or to disregard the clauses altogether if they have a justifiable legal reason to do so. Each time a Judge reads around or disregards a particular clause, defense counsel for employers try something different to protect their employer clients. And so the proverbial game of whack-a-mole continues on.

A recent line of authority gaining strength in Ontario has arisen out of the Ontario Court of Appeal case Waksdale v Swegon North America Inc., 2020 ONCA 391. The line of attack is essentially that if there are a series of clauses in an employment dealing with termination of employment, if any of those clauses violates the mandatory provincial employment standards legislation, then that whole class / type of clauses in the contract, or even the contract itself, is void. In Waksdale, the employment contract at issue contained a section dealing with “just cause” for termination, and it had a clause that limited the employee’s severance upon termination of employment. The employer did not purport to terminate employment for cause, but wanted to rely on other clauses dealing with termination, in particular, the severance clauses. The parties to the litigation were in agreement that the clause respecting termination for cause was void. The employee argued that the void just cause provision had the effect of tainting the whole termination section of the contract, including the part dealing with severance, such that it should all be considered void. The employer argued the just cause clause could be struck out but that should not affect the other termination clauses.

The Ontario Court of Appeal in Waksdale agreed with the employee, finding that the “just cause” clause rendered all of the termination clauses in the contract unenforceable:

[10] […] An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. Recognizing the power imbalance between employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESA rights. While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal. In conducting this analysis, it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked. […] [underline added]

[11] Further, it is of no moment that the respondent ultimately did not rely on the Termination for Cause provision. The court is obliged to determine the enforceability of the termination provisions as at the time the agreement was executed; non-reliance on the illegal provision is irrelevant.

This same line of reasoning was then applied in Sewell v. Provincial Fruit Co. Limited 2020 ONSC 4406 last year, and again in the brand-new Ontario case of Ojo v Crystal Claire Cosmetics, 2021 ONSC 1428 as well [thanks to Barry Fisher for providing me with a copy of the Ojo case].

In Ojo, the clause at issue indicated that if the employer had just cause for summary dismissal, it would not be required to pay the employee any termination notice. The Court found that for an employee to receive nothing under the Employment Standards Act of Ontario, the employee’s misconduct would have to be worse than the misconduct required for just cause summary dismissal under the ordinary common law test. The Court found that the clause therefore provided less protection than the minimum employment standards, and that it therefore tainted the entire termination clause, rendering it unenforceable.

My Take

My Take So, what does this mean in Alberta? Although this Ontario line of authority does not appear to have been seriously tried in Alberta, it will be tried by someone in litigation soon enough. Lawyers doing primarily defense work may think these cases are just too distinguishable because the Alberta Employment Standards Code does not actually specify the standard of misconduct amounting to just cause, so those clauses cannot as easily violate the ESC.

I do not think these cases are as distinguishable as defense counsel may wish to believe. Alberta Employment Standards officers and umpires do still have to regularly determine what amounts to just cause in this province in order to carry out the function of their legislation. If a contract allows for a standard of just cause which falls below the standard used by Alberta Employment Standards

based on its interpretation of its own legislation- it may be that such a clause violates the Alberta ESC and could taint the rest of the termination provisions in the contract.

Bow River Law is a brand new firm, but our lawyers are knowledgeable, skilled and experienced in employment law in Alberta. Joel Fairbrother has been making the argument contained in the Waksdale line of authority for years now, with successful severance settlements along the way. Until recently that argument was novel and generally untested, but it is picking up steam and may be a viable position in Alberta as well.

If you are an employee with an employment contract which appears to limit your rights in some way, let us help you determine if there is a way to fight back.

If you are an employer who needs strong employment contracts or an update to previous ones, let us help you draft them.

The Waksdale case can be found at the following link on CanLii: https://www.canlii.org/en/on/onca/doc/2020/2020onca391/2020onca391.html?autocompleteStr=waksdale&autocompletePos=1