Invalid “Just Cause” Termination Clause Cannot Be Severed

Termination clauses within employment contracts play a crucial role in defining what employees can expect if they face dismissal. Typically, when an employee is dismissed for just cause, they do not receive a termination package. The determination of whether just cause indeed exists hinges on the severity of the employee’s wrongful act, negligence, or gross incompetence, which must be so significant that it fundamentally contradicts the terms of the employment contract and the working relationship.

While there are various reasons why termination clauses may become unenforceable, a significant legal development in the case of Waksdale v Swegon North America Inc, 2020 ONCA 391, highlights an essential point: an unenforceable just-cause termination clause cannot be considered independently from the overall termination clause.

What is a Termination Clause?

Before delving into the intricacies of why an “Invalid ‘Just Cause’ Termination Clause Cannot Be Severed,” let’s start by understanding the fundamental concept of a termination clause in an employment contract.

A termination clause, often found in employment agreements, outlines the conditions under which an employer or an employee can end the employment relationship. It serves as a legally binding provision that sets the terms and conditions for termination, covering aspects such as notice periods, severance pay, and the circumstances under which termination can occur.

What is Just Cause Termination?

In employment law, “Just Cause Termination” is a critical concept that defines the circumstances under which an employer can legally terminate an employee without providing notice or compensation in lieu of notice. This type of termination is often referred to as a “for cause” or “summary dismissal.”

Just Cause Termination is typically invoked when an employee’s actions or behaviour give rise to serious misconduct or a breach of employment terms to the extent that continued employment is no longer feasible. Such actions may include but are not limited to:

• Theft or embezzlement.
• Gross insubordination.
• Repeated violation of company policies.
• Workplace violence.
• Disclosure of sensitive company information.
• Fraudulent activities.

It’s important to note that the threshold for establishing “just cause” termination is quite high, and employers must provide clear evidence to support their decision. Employees subject to such terminations may challenge them in court, employment standards boards, or labour arbitration.

Case Analysis

Trial Court: Motion for Summary Judgment Decision

In the case of Waksdale v Swegon North America Inc, 2019 ONSC 5705, the Ontario Superior Court of Justice examined whether an unlawful for-cause termination clause rendered the with-notice termination clause unenforceable. The plaintiff had entered into an employment contract with two distinct termination clauses, outlining the expectations for both with-cause and without-cause terminations.

Following the plaintiff’s dismissal without cause, a wrongful dismissal claim was initiated, asserting that the with-notice termination clause was unenforceable due to the invalidity of the for-cause termination clause.

Notably, the defendant acknowledged the ineligibility of the for-cause clause due to its violation of the Employment Standards Act, 2000. However, they argued that this had no bearing on the validity of the two separate clauses.

The Ontario Superior Court of Justice concurred with the defendant, asserting that the with-notice termination clause remained valid, unaffected by the issues associated with the for-cause termination clause.

The motion for summary judgment was rejected, and the plaintiff was directed to reimburse the defendant $16,000 for costs.

Plaintiff’s Appeal: Ontario Court of Appeal Decision Sets Aside Lower Court Decision

The Ontario Court of Appeal determined that the motion judge had made a legal error in interpreting the employment contract. Essentially, termination clauses must not be analyzed in isolation, irrespective of how they are presented. An employment contract should be considered as a whole, not in a piecemeal fashion.

Given that the for-cause and with-notice termination clauses must be understood in conjunction, the severability clause could not be applied to remove the problematic segment of the termination clauses.

Moreover, it was inconsequential that the employer had been relying on the with-notice termination clause during the dismissal, as the enforceability of the termination clauses must be determined at the time the agreement was established.

The Ontario Court of Appeal nullified the motion judge’s ruling and directed the matter to be returned to the motion judge for the assessment of the employee’s damages and the costs of the action.

Conclusion

The legal landscape surrounding termination clauses in employment contracts is far from simple. They hold the power to define the rights and expectations of both employers and employees in the event of dismissal. This complexity was recently underscored in the case of Waksdale v Swegon North America Inc, 2020 ONCA 391.

The decision by the Ontario Court of Appeal in this case has brought into focus the interconnection of just-cause and with-notice termination clauses within employment agreements. It serves as a reminder that the enforceability of these clauses should not be taken lightly and cannot be assessed in isolation. Employment contracts are holistic documents, and their interpretation should reflect this unity.

Understanding the nuances of termination clauses, their interplay, and the legal standards they must meet is essential for both employers and employees. This case illustrates the importance of seeking legal counsel when drafting or interpreting employment contracts to ensure that the rights and obligations of all parties are clearly defined and protected.

As the legal landscape continues to evolve, vigilance and legal experience are vital in navigating the complexities of employment law, safeguarding the interests of both employers and employees. The Waksdale case demonstrates that the smallest details in an employment contract can have far-reaching consequences, and being informed is the first step in addressing these critical issues.

Contact Achkar Law

If you are an employer looking to draft or update your employment contract, or an employee seeking to clarify your rights, our experienced just cause dismissal lawyer can help.

Contact us at 1-800-771-7882, or email [email protected] and we would be happy to assist.

Related Reading

• Dismissal for Just Cause in Ontario: Understanding Your Rights and Responsibilities
• Termination Without Cause in Ontario: What You Need to Know
• What is an Unconscionable Employment Contract?
• Ontario Court Ruling’s and Employment Termination Clauses
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