Employers, review those Employment Agreements!

Since the 2020 decision in Waksdale v Swegon North America Inc., 2020 ONCA 391 (“Waksdale”), it has been more difficult for employers to argue the termination provisions in their employment agreements are enforceable. 

There is a presumption at common law that an employee is entitled to reasonable notice of termination when an employee is terminated “without cause”. The common law reasonable notice period can be significantly longer than the minimum entitlements under the Ontario Employment Standards Act, 2000 (“ESA”).  The common law reasonable notice period is determined based on the consideration of several factors including the age of the employee, length of service, character of employment, and the availability of similar employment. 

This presumption is rebuttable, but only where there is an enforceable provision that limits an employee’s entitlements to the minimum standards under the ESA, when terminated.  However, if the termination provision does not comply with the ESA’s requirements, the employer will be liable to provide the employee reasonable notice based on the common law standard. 

In Waksdale, the employee argued that because the termination “for cause” provision in his employment agreement was non-compliant with the ESA, the enforceable termination “without cause” provision should be voided.  The Court agreed and awarded the employee with a greater common law reasonable notice period than the termination “without cause” provision allowed for.  The Court refused to rely on the severability provision, finding instead that the termination provisions should be read as a whole and that if one provision was unenforceable than all the provisions were unenforceable.

Employers should review their contractual provisions for existing employees and new hires and make necessary revisions to ensure their enforceability.  For existing employees, fresh consideration, such as a signing bonus, must be given by the employer to the existing employee to give effect to any revisions or modified terms.