New case underscores importance of 'well-crafted' contracts

'Employers should continue to be mindful of the words they put on paper'

New case underscores importance of 'well-crafted' contracts

Employers should be more careful on their termination-related clauses in employment contracts, following a recent ruling from the Ontario Court of Appeal.

The decision overturned a ruling from the Ontario Superior Court, where an employer was not penalised for having a "poorly drafted termination clause," explained Howard Levitt, a senior partner of Toronto-based employment lawyers Levitt Shiekh, in a commentary in the Financial Post.

Background

The case stems from the termination for an employee of an architecture company, which only paid the former employee the equivalent of four weeks of her regular wages based on their termination contract.

The axed worker, however, claimed she owed additional payments beyond what was required by the Employment Standards Act (ESA), which was all that her contract afforded her, according to Levitt.

The Ontario Superior Court sided with the employer on architecture company when the case was brought towards them, citing that since the employee also sought legal advice, she had equal bargaining power with her employee.

This goes against a court decision 2020, titled Waksdale vs Swegon North America, which nullified poorly drafted contracts.

Ruling

The case was appealed to the Ontario CA, which overruled the top court's decision and upheld the Waksdale ruling in 2020.

Genevieve Cantin, employment lawyer from Miller Thomson LLP, said that the court "reiterated that if one part of a termination provision in an employment contract violates the ESA, the remaining parts of the termination provision in the contract are invalid."

Read more: Shocking “ignorance” of employee contracts

"As it did in Waksdale, the Court stated that it did not matter that the employer had not purported to terminate the employee for just cause. The just cause provision in the employment contract violated the ESA," said Cantin.

"And the invalidity of that provision rendered the other part of the termination provision, including the without cause portion, unenforceable."

Levitt said the contractual error cost the architecture firm "much more severance that was agreed or contemplated and considerable legal fees, all easily avoidable by a well-crafted termination section."

What does it mean for employers?

The decision reiterates the importance of having a well-worded contract to avoid legal repercussions in the future.

"Employers should continue to be mindful of the words they put on paper and seek legal advice to review and reconsider the language in their existing employment agreements and templates to address potential concerns," said Cantin.

Levitt, on the other hand, suggested that employment contracts should be viewed as "living documents."

"Employers should learn from this. Update your contracts but, once updated, do not let them remain untouched. They should view their employment contracts as living documents which must be updated periodically to keep up with developing laws."

For employees, Levitt said that engaging with a lawyer before signing a contract will educate them to what they are accepting.

The case suggests that there are "unlikely to be adverse consequences to obtaining such advice," according to Levitt.

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