Invalid “Just Cause” Termination Clause Cannot Be Severed

Termination clauses in employment contracts define what an employer owes a departing employee. When they work, they limit liability to the bare minimum required by the Employment Standards Act, 2000 (ESA). When they fail, the employer is on the hook for common law reasonable notice, which is often many months of pay per employee.

The Ontario Court of Appeal's decision in Waksdale v Swegon North America Inc, 2020 ONCA 391 made it dramatically easier for employees to invalidate a termination clause. A single non-compliant line in a for-cause termination clause can make the entire termination provision unenforceable, even where the employer relied only on the without-cause clause.

This article explains what Waksdale decided and what Ontario employers need to do about it now.

What is just cause termination?

Just cause termination, sometimes called "for cause" or summary dismissal, is the legal grounds an employer relies on when terminating an employee without notice or pay in lieu of notice. The threshold is high: the employee's conduct must be serious enough to fundamentally undermine the employment relationship.

Employers cannot rely on just cause for performance issues, personality conflicts, or one-off mistakes. The bar is closer to misconduct that destroys the trust at the heart of the working relationship.

What kinds of conduct can amount to just cause?

Even with conduct that fits these categories, employers must be able to prove the misconduct with clear evidence. Employees can challenge a just cause termination in court, before the Ministry of Labour, or through labour arbitration.

The Waksdale decision: what happened

The Waksdale case began as a straightforward wrongful dismissal claim. The employer dismissed Mr. Waksdale without cause and relied on the without-cause termination clause in his employment contract.

The contract contained two separate termination clauses: one for with-cause terminations and one for without-cause terminations. The for-cause clause violated the ESA. The employer conceded this. But the employer argued that this did not matter because they had dismissed Mr. Waksdale without cause and were relying only on the with-notice clause.

Trial court: employer wins

The Ontario Superior Court of Justice agreed with the employer. The motion judge held that the two termination clauses could be analyzed independently. Because the without-cause clause was on its own valid, it remained enforceable despite the problems with the for-cause clause. The motion for summary judgment was rejected and the plaintiff was ordered to pay $16,000 in costs.

Court of Appeal: employee wins, lower court reversed

The Ontario Court of Appeal reversed. The Court held that termination clauses must be read as a whole, not in isolation. Because the for-cause and without-cause provisions are part of a single termination scheme, the invalidity of one section infects the other.

Three points from the decision matter for employers:

• Termination provisions are read together. Courts will not look at one clause in isolation.
• The severability clause in the contract could not save the without-cause clause.
• It did not matter that the employer was not actually relying on the for-cause clause. Enforceability is determined at the time the contract was signed, not at the time of termination.

The case was sent back to assess damages and costs against the employer.

Key lessons for Ontario employers from Waksdale

What employers should do now

Why this matters financially

The financial gap between an enforceable ESA-minimum termination clause and common law reasonable notice can be substantial.

An ESA-compliant termination clause typically limits an employer's obligation to one to eight weeks of notice or pay in lieu, depending on length of service. Common law reasonable notice, by contrast, is typically calculated at roughly one month per year of service, with longer awards for older employees, senior positions, or limited re-employment prospects.

For a long-service or senior employee, the gap between these two outcomes can easily exceed six figures per termination. Multiply that across your workforce and the cost of an unenforceable termination clause becomes very real.

Frequently asked questions about Waksdale and termination clauses