Employment Contracts: A Quest for Enforceability
Quoting Macbeth, what is done cannot be undone. That being said, in the employment law context it has increasingly been the case that the termination clauses that have ‘been done’ are in turn ‘undoing’ the very contracts they form a part of because Courts are finding them invalid.
A contract is a key component in starting a business relationship, and it is nearly universally recommended to have a signed contract outlining the fundamental terms and conditions of the parties. In an employment context, this written record of the relationship takes the form of an employment contract. One of the key elements in any employment contract is the ability for the employer to terminate the agreement, in exchange for an agreed-upon payment. But can those clauses be enforced?
Recent Court decisions have raised the issue of whether or not employment contracts are unenforceable for want of a valid termination clause.
Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158
The 2017 Ontario Court of Appeal decision in Wood v. Fred Deeley Imports Ltd. (“Wood”) stands for the principle that the termination provision in an employment contract must comply with the statutory entitlements provided by the Employment Standards Act, 2000.
In the case itself, the key question was whether the employee’s employment agreement was enforceable. The termination clause in the employee’s contract allowed the employer to terminate them at any time without cause by providing the employee with two weeks’ notice or pay in lieu of notice for each year of employment. The Court found that the clause was invalid because it excluded some entitlements owed to the employee under the Employment Standards Act, 2000. The result was that the contract as a whole was found unenforceable.
Waksdale v. Swegon North America Inc. 2020 ONCA 391
Building off of Wood, the 2020 Ontario Court of Appeal decision in Waksdale v. Swegon North America Inc. (“Waksdale”) made it clear that employment agreements ‘must be interpreted as a whole and not on a piecemeal basis’. If one clause is invalid – even if it is not being relied upon – the entire contract may be found unenforceable, even in the presence of a severability clause.
Unlike Wood, which focused on the without cause termination clause of an employment contract, the question in Waksdale was focused on the ‘with cause’ termination provision. The Court found that the ‘Termination for Cause’ provision of the contract was void because it attempted to contract out of the minimum standards of the Employment Standards Act, 2000. As a result, the entire contract was deemed unenforceable, even though the ‘Termination for Cause’ clause was not being relied upon.
Henderson v. Slavkin et al 2022 ONSC 2964
The 2022 Ontario Superior Court decision in Henderson v. Slavkin (“Henderson”) took Waksdale a step further, and invalidated an employment contract because termination provisions in separate, non-termination clauses were invalid.
Unlike Wood and Waksdale, the termination provision in Henderso was deemed valid. However, the contract was nonetheless found unenforceable. Drawing on Waksdale, the contract was interpreted as a whole: though the termination provision was valid, the conflict of interest and confidential information clauses were not. Both clauses had just cause termination as a penalty for non-compliance, and the Court found that they were invalid, thereby rendering the entire contract unenforceable.
In sum, the enforceability of the termination clauses of a contract is a real question, having significant consequences for employer and employee alike. The uncertainty caused by these decisions engages both the legislative regime under the Employment Standards Act, 2000, as well as the common law regime, turning what ought to be straight-forward process into one fraught with difficulties.
Our lawyers are experienced with employment contract issues and have helped many individuals and organizations properly and successfully navigate the pitfalls of employment issues. Contact us at 807-344-1112 or by email to get answers to your employment contract questions.
Written by Suraj Dave
Edwards Bell Jewitt LLP