If you're concerned about the enforceability of the termination clause in your employment contract, it's important to understand that the answer isn't always straightforward.
Termination Clauses Enforceability and Workplace Termination Laws: It Depends
Short Answer: The enforceability of termination clauses varies. In many cases termination clauses are NOT enforceable.
The Ontario Employment Standards Act (ESA)
The Ontario Employment Standards Act (the “ESA”) sets out the minimum standards employees are entitled to when they are terminated/dismissed. Subject to certain exceptions, most employees are entitled to more than the ESA minimums. Many employment contracts contain termination clauses attempting to limit employees to the minimum notice period or pay in lieu of notice set out under the ESA. Employees are usually entitled to more.
Termination Clauses Must Comply with the ESA
Termination clauses must comply with the ESA. A termination clause that can be interpreted in a manner inconsistent with the ESA is not enforceable.
The Waksdale v. Swegon North America Inc. Decision
There are many reasons why termination clauses may not comply with the ESA. For example, the courts have ruled termination clauses that do not provide for continued benefits during the minimum reasonable notice period are not enforceable because they violate the ESA. Another example comes from a landmark decision of Waksdale v. Swegon North America Inc., where the Ontario Court of Appeal found a termination clause was not enforceable because it permitted the employer to terminate “for cause,” which was found to have broader application than the statutory requirement to terminate without notice or pay under the ESA, the latter of which is reserved for situations where the employee has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial, and has not been condoned by the employer.
The Wilds v. 1959612 Ontario Inc. Case
In the recent decision of Wilds v. 1959612 Ontario Inc., 2024 ONSC 3452 (S.C.J.), the court found a termination clause was enforceable for a number of reasons, including it only provided Ms. Wilds with her “base salary and employment-related health and dental benefits during the applicable notice period”, whereas the ESA says the employer cannot reduce wages or alter any other term or condition of employment during the notice period. The court found the termination clause did not include vacation pay, bonus and other benefits Ms. Wilds was entitled to under her employment contract, i.e. life insurance and accidental death and dismemberment insurance. The termination clause purporting to limit Ms. Wilds’ entitlements to the minimums under the ESA was not enforceable.
One Invalid Clause Can Invalidate All Termination Clauses
The courts have also determined if just one termination clause in the contract is not valid, none of the termination clauses are enforceable. The courts have been very clear about this. It does not matter whether the employer is relying upon a termination clause that is otherwise enforceable. If just one of the termination clauses is not enforceable, none of them are. The law is very employee-friendly in this regard. This may not seem fair to employers, but that is the law.
Why You Should Consult a Lawyer About Enforceability of Termination Clauses
It is important to obtain legal advice if your employer is relying upon a termination clause limiting you to the ESA minimums because in many cases these clauses are NOT enforceable.
If you have any questions about the termination provisions in your employment contract or the termination pay you’ve been offered, please do not hesitate to contact us.
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