Canada: Court: Illegality Of "For Cause" Termination Provision In Employment Agreement Does Not Taint Distinct "Without Cause" Termination Provision

An Ontario summary judgment decision released October 3, 2019 has confirmed that an enforceable "without cause" termination clause is not unenforceable on the sole basis that, elsewhere in the employment contract, the "for cause" termination clause violates the Employment Standards Act, 2000 (the "ESA").

In Waksdale v. Swegon North America Inc., 2019 ONSC 5705, the employee's employment contract included two distinct termination provisions: one governing termination without cause (the "Without Cause Provision"), and the other governing termination for cause (the "For Cause Provision"). The Without Cause Provision provided as follows:

You agree that in the event that your employment is terminated without cause, you shall receive one week notice or pay in lieu of such notice in addition to the minimum notice or pay in lieu of such notice and statutory severance pay as may be required under the Employment Standards Act 2000 as amended. All reimbursement for business expenses shall cease as of the date of termination of your employment, however, you shall be reimbursed for legitimate business expenses that have been incurred and submitted to the Company but not as yet paid you to that date. The terms of this section shall continue to apply notwithstanding any changes hereafter to the terms of your employment, including, but not limited to, your job title, duties and responsibilities, reporting structure, responsibilities, compensation or benefits.

The For Cause Provision was not reproduced in the decision. However, like many employment contracts, it likely provided that the employee could be terminated without notice or pay in lieu of notice for "just cause".

The plaintiff employee argued on summary judgment that the For Cause Provision violated the ESA because it purported to allow the employer to terminate the employee without any notice or pay in lieu of notice for cause, but s. 2 of O Reg 288/01 under the ESA requires the employer to provide notice or pay in lieu of notice unless the employee has engaged in wilful misconduct, disobedience or wilful neglect of duty. The employee argued that the Without Cause Provision should be read in conjunction with the illegal For Cause Provision, and that the entire termination clause is therefore unenforceable.

The motions judge disagreed and dismissed the action:

[15] ... the Termination of Employment with Notice clause does not require re-writing in any way. It is a stand-alone clause, and is enforceable without reference to the Termination with Cause clause. Nothing further needs to be done to 'save' the Termination of Employment with Notice clause, as it is enforceable on its own express terms.

[16] While I agree with Plaintiff's counsel that employment agreements are generally to be interpreted as delineating and enforcing employees' rights, "this principle cannot be stretched to the point of finding ambiguity where none exists": Lopez v EMD Inc., 2017 ONSC 7716 (CanLII), para 32. The Termination of Employment with Notice clause is unambiguous, enforceable, and stands apart from the Termination for Cause clause. Indeed, the Termination for Cause clause itself specifically states that it applies only "[i]f the Company terminates your employment pursuant to this Section..."

[17] There is no need to sever anything here as by its own terms the Termination for Cause provision does not apply to the present case. It is only the Termination of Employment with Notice clause which applies here, and there are no grounds on which to challenge the enforceability of that clause. It does not contravene the ESA, and is therefore valid and enforceable as written and agreed to.

This decision follows Khashaba v Procom Consultants Group Ltd., 2018 ONSC 7616 (CanLII), decision released last year, in which the court similarly upheld an enforceable without cause termination clause notwithstanding that the for cause termination clause was illegal.

Of course, this decision is only relevant to employment agreements with distinct provisions governing terminations for cause and without cause. The result would almost certainly have been different if there was only one clause governing both termination for cause and termination without cause. As such, employers and employer-counsel should ensure that their termination clauses are structured in a manner that reduces the risk that the entire termination clause will be struck by the court.

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