In February 2024 the Superior Court of Justice struck down a termination clause for two reasons: a well-known reason stemming from the Court of Appeal’s decision in Waksdale v. Swegon which struck down many for cause termination clauses; and a somewhat more novel reason based on the wording of the without cause termination clause.
Superior Court of Justice Decision
Justice Pierce of the Superior Court of Justice (“SCJ“) was faced with two arguments regarding the enforceability of the termination clause in Ms. Dufault’s employment agreement. The first argument rested on an earlier case of Waksdale v. Swegon which focused on the wording of the “for cause” termination clause. The Waksdale decision established that a “for cause” termination clause may be unenforceable where the clause purports to eliminate the employee’s entitlement to minimum notice and severance while setting a “for cause” termination standard that is lower than the standard contained in the Employment Standards Act, 2000 regulations.
The ESA standard is “wilful misconduct” and the difference between “wilful misconduct” and “cause” is related to the level of “wilfulness” on the employee’s part. Wilful misconduct involves an employee who is “being bad on purpose”, while just cause does not necessary require that degree of employee misbehaviour. If an employer terminates an employee for “just cause”, the employee would still be entitled to minimum ESA termination entitlements, while an employee who is terminated for “wilful misconduct” is not. The essential point, however, is that a termination clause that permits an employer to terminate for “just cause” without providing for minimum ESA termination entitlements is unenforceable.
The Waksdale case went further, however, and provided that if the “just cause” termination clause is unenforceable, all other termination clauses are also unenforceable. This means that even if your “without cause” termination clause is enforceable, a bad “just cause” termination clause will void the “without cause” section as well. Relying on the Waksdale decision, the SCJ in Dufault decided that the employee’s termination clauses were all unenforceable because the contract permitted termination for “just cause” without providing ESA minimum termination entitlements to the employee. The employee was therefore entitled to reasonable notice of termination.
Had the SCJ’s decision stopped there, it would not be controversial or concerning to most employers as the Waksdale rule has now been well established. The SCJ continued, however, and found that in addition the “without cause” termination clause was also unenforceable because it permitted termination “at any time”. According to the SCJ in Dufault, a clause permitting termination “at any time” was unenforceable because it could be read as permitting the employer to terminate an employee’s employment even where the employee is away on a job protected leave such as maternity leave. The SCJ decided, therefore, that the “without cause” termination was unenforceable on its own.
The Ontario Court of Appeal Decision
The Ontario Court of Appeal issued its decision around December 2024 in which the ONCA agreed that the termination clause was unenforceable on the basis of Waksdale, but the ONCA declined to answer the question on whether the termination clause is unenforceable on the basis of the “at any time” language. The ONCA essentially avoided the hard question of the appeal, leaving continuing uncertainty on whether termination clauses that provide for termination at “any time” are enforceable.
Takeaways for Employers
Ontario employers should already have updated their termination clauses to align with the decision in Waksdale to remove “just cause” language in most cases where the employment agreement contains minimum standards termination entitlements. Employers who have not done so should look at their employment agreements as soon as possible.
The takeaway from Dufault is that employers need to take care to ensure that the remainder of their termination clauses are also not open to challenge. If the termination clause could be interpreted as infringing on ESA minimum standards, then careful review ought to be done to ensure such language is eliminated. While the ONCA in Dufault declined to take up the argument relating to the “at any time” termination language, we recommend removing such language anyway as there is a likelihood it will be taken up by the courts in a subsequent action.
At Bridge Legal & HR Solutions, we specialize in providing expert legal advice with up-to-date knowledge of legislation. With our support, organizations can navigate these legal changes with confidence and integrity. To learn more about how we can support you, contact Bridge Legal & HR Solutions – (647) 794-5442 or at admin@bridgelegalhr.ca