Legal case impacts thousands of Canadian employers

The case revolves around termination clauses in contracts

Legal case impacts thousands of Canadian employers

As we look forward to 2021, employers have to brace themselves for some monumental employment law changes.

COVID-19 meant HR leaders have had to revisit their contracts – specifically around workplace health and safety, and termination.

However, there’s one case that is already affecting thousands of Canadian employers. The case in question is Waksdale v Swegon North America – which revolves around wrongful dismissal action by Benjamin Waksdale against his former employer. Waksdale claims he was terminated without just cause after eight months in the job – going on to sue for six months’ pay.

 The case revolves around termination clauses in contracts. Contracts often have two termination clauses – one that addresses situations where the employee is terminated without cause, and the other addressing what happens if the employee is fired with cause.  In many contracts, the latter says that if an employee is terminated with cause, the employer doesn’t have to pay out anything.

The Waksdale decision is important because Mr. Waksdale used problems in the “with cause” termination clause to undermine the whole contract – even though his employer never even suggested that it had cause to fire him. 

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HRD spoke to Stephen Wolpert, partner at Whitten & Lublin, who shed some light on the important matter.

“The court wants to encourage employers to draft fair contracts that cannot give employers opportunities to violate employment standards legislation.  If the court sees one part of a termination clause that violates the legislation, it has a choice: just take out the part that violates the legislation and leave everything else in place, or take out the whole contract.  And the court has consistently made the same choice; take the whole thing out.”

Wolpert went on to explain that courts are reluctant to treat as unenforceable only the parts that violate legislation, because it would take away employers’ incentive to draft fair contracts. 

He added: “The court does not want to act as counsel to employers, fixing mistakes for them after the fact.  They also worry that those mistakes often go unchallenged by vulnerable employees and want to address the contracts in a way that protects employees.”

What makes Waksdale so important is that the clause it decided was unenforceable – the for cause clause – is extremely commonplace in employment contracts across the country.  It means that potentially tens of thousands of employment contracts became unenforceable.

“When Ontario’s Court of Appeal released its decision last summer, employers across Ontario were scrambling.  Some were looking to revise contracts going forward, while others were reconsidering the potential costs of severance.”

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But the issue is now even more widespread.  On January 14, 2021, Swegon North America’s efforts to have the case heard by the Supreme Court of Canada were rejected, meaning that employees across Canada are now going to try to rely on it.  Wolpert noted that employees and employers across Canada would now have to pay close attention. 

For many employees, this will be a boon, as their entitlements to severance payments on termination may have increased significantly without them having had to do anything differently.  This may come as welcome news for many during these tumultuous times. 

For employers, however, the decision creates potential added costs at a time when many are just trying to stay afloat. 

Wolpert estimates that around 80% of employers currently have these sorts of clauses in their written contracts.

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