What Happens If Part of a Termination Clause Within An Employment Contract Violates the Employment Standards Act?
Contracts With Clauses That Restrict or Limit the Common Law Termination Pay Rights of An Employee May Be Deemed Unenforceable If Any Termination Pay Clauses Violate the Employment Standards Act.
Understanding When Employee Rights Alter Due to a Contract That Breaches Employment Law Mandates
Typically, employees presume and even expect that employment will continue without interruption barring a 'just cause' termination for inappropriate conduct by the employee. Alternatively, without a just cause, employees expect, and appropriate notice of an impending termination should it occur. That is, the law has a long tradition whereby employers are expected to provide advance warning of a termination or, absent an advance warning, pay-in-lieu of reasonable notice when an employee is terminated without just cause.
Proper notice involves notice of termination that abides by the law. Generally, there are two ways in which proper notice may be determined:
- Proper notice may be a specified period of time as defined within the employee contract so long as the specified period of time, among other things, complies with the minimum requirements prescribed within the Employment Standards Act, 2000, S.O. 2000, Chapter 41; or
- Proper notice, in the absence of an enforceable contract specifically defining the period of time, will be determined as the period of time that is reasonable in the circumstances based upon factors known as Bardal Factors.
Reasonable notice takes into account what are known in employment law as the Bardal Factors. The Bardal Factors stem from the decision Bardal v. Globe & Mail Ltd., 1960 CanLII 294. Typically, factors such as the character or nature of the employment, the length of service of the employee, the age of the employee, and the availability of similar employment, among other things, are all factors for review and that will contribute to the calculation or determination of what pay-in-lieu of notice, as per the common law, should be owed by an employer to an employee. This was stated in the Bardal case wherein it was said:
21 There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.
Disputes in employment law often pertain to wrongful dismissal, meaning a dismissal without proper notice or pay-in-lieu. Typically, the failure to provide proper notice or proper pay-in-lieu occurs when an employer miscalculates the period of time for which termination pay is required. This miscalculation often arises where the employer and employee previously entered into a contract containing provisions meant to specify the period of time that will be defined as proper notice; however, and obviously inadvertently, such a limiting clause is later deemed unlawful, unenforceable, and therefore reasonable notice based on the Bardal Factors becomes applicable instead. In this regard, employers are often very diligent to ensure that the termination clauses within employment agreements will be enforceable and therefore substitute for the Bardal Factor based reasonable notice; however, a recent decision by the Court of Appeal now casts a widespread cloak of concern over most, and perhaps all, employment contracts governed by the laws of Ontario.
Requires Lawful Clauses Within Contract
The case of Waksdale v. Swegon North America Inc., 2020 ONCA 39 pertained to a wrongful dismissal action by employee Benjamin Waksdale against former employer Swegon North America Inc.. Waksdale was given two (2) weeks pay-in-lieu of notice upon termination after eight (8) months of work. Waksdale sued for six (6) months pay. The employment contract had a Termination Without Cause provision. The provision stated:
Termination of Employment with Notice
You agree that in the event that your employment is terminated without cause, you shall receive one week notice of pay in lieu of such notice and statutory severance pay as may be required under the Employment Standards Act 2000 as amended. All reimbursement for business expenses shall cease as of the date of termination of your employment, however, you shall be reimbursed for legitimate business expenses that have been incurred and submitted to the Company but not as yet paid you to that date. The terms of this section shall continue to apply notwithstanding any changes hereafter to the terms of your employment, including, but not limited to, your job title, duties and responsibilities, reporting structure, responsibilities, compensation, or benefits.
The employment contract also had a Termination for Cause provision. The employer conceded that the Termination for Cause provision breached the Employment Standards Act, 2000 and was likely void and unenforceable; however, Waksdale was terminated without cause.
The employer sought to rely on the termination without cause provision, singularly, to limit the employee’s notice payment to just two weeks. The notice period standing alone was Employment Standards Act, 2000 compliant. On that basis, when the employee was terminated without cause, he would have been entitled only to the two weeks notice provided per the contract. However, the separate Termination for Cause provision violated the Employment Standards Act, 2000 because the contract contemplated that the employee could be terminated without pay or notice for just cause alone, without reference to the higher standard of “willful misconduct…” as required per the Employment Standards Act, 2000 provisions.
The Court of Appeal concurred with Waksdale, the employee, that the employment contract must be read as a whole and refused to simply sever the unlawful Termination for Cause provision from the lawful Termination Without Cause provision. The Court of Appeal stated:
 In the present case, there is no question that the respondent would not be permitted to rely on the Termination for Cause provision. The issue is whether the two clauses should be considered separately or whether the illegality of the Termination for Cause provision impacts the enforceability of the Termination of Employment with Notice provision. The respondent submits that where there are two discrete termination provisions that by their terms apply to different situations, courts should consider whether one provision impacts upon the other and whether the provisions are “entangled” in any way. If they are not, the respondent argues, then there is no reason why the invalidity of one should impact on the enforceability of the other.
 We do not give effect to that submission. 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. Here the motion judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.
 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.
 The mischief associated with an illegal provision is readily identified. Where an employer does not rely on an illegal termination clause, it may nonetheless gain the benefit of the illegal clause. For example, an employee who is not familiar with their rights under the ESA, and who signs a contract that includes unenforceable termination for cause provisions, may incorrectly believe they must behave in accordance with these unenforceable provisions in order to avoid termination for cause. If an employee strives to comply with these overreaching provisions, then his or her employer may benefit from these illegal provisions even if the employee is eventually terminated without cause on terms otherwise compliant with the ESA.
Accordingly, the Court of Appeal struck down the entire termination scheme because part of the scheme failed to comply with the Employment Standards Act, 2000, mandates and was therefore a potential 'mischief' upon, or detrimental to, the employee.
The ramifications of the Waksdale decision render, in all probability, the vast majority of existing employment contracts in Ontario unenforceable, leaving many thousands of employers vulnerable to the full force of the law with respect to ambiguous employment terminations.
A specific, concomitant consequence of the Waksdale decision will be that not only must an employment contract be holistically compliant with the Employment Standards Act, 2000 but that the bar is now sky-high with respect to degree of compliance. Typically, when terminating for just cause, employers are still required to pay Employment Standards Act, 2000 Notice and Severance unless there was “willful misconduct, disobedience, or willful neglect of duty” which is substantive and was without condonation by the employer. In the wake of the Waksdale decision, an employment contract will require that there be a distinction between termination for Just Cause and termination for “willful misconduct, disobedience or willful neglect of duty…” or else it is likely the contract will be unenforceable.
The Waksdale decision thus imposes a new and serious liability for employers with new levels of risk for employers who fail to heed the impending changes in the realm of employment law litigation.
An employer must provide an employee with a contract that fully complies with the termination provisions of the Employment Standards Act, 2000 or face liability for wrongful dismissal. Whereas an employer may limit termination pay to, at a minimum, the Employment Standards Act, 2000 requirements, where the employer drafts and provides a contract with liability limiting clauses, all clauses must be compliant. Even if the employer is without subsequent desire to rely upon unlawful clauses, the presence of the unlawful clauses within the contract will be read alongside the legal clauses that fall within the same context; the context being the termination pay provisions. Where certain termination provisions are deemed unlawful, the entire section of termination provisions will be deemed unlawful and therefore the limiting liability clauses will be unenforceable.