Termination Provision: Warning for Employers regarding the validity of the Employment Agreements

In 2020, the landmark case of Waksdale v Swegon North America Inc., caused a ripple effect in the validity of termination provisions throughout Ontario. The Waksdale decision requires that most employers revise the termination provisions in their existing employment contracts or run the risk that they may be required to provide a terminated employee significantly more money than the minimums required in the Employment Standards Act (“ESA”).

The Court of Appeal ruled that the termination provisions in an employment contract will be deemed unenforceable if the wording of any other termination provision in the employment contract contravenes any aspect of the ESA or its regulations. Regardless, if the Employer has terminated the employee without cause or with cause, if one of the termination provisions violates the ESA, the entirety of the termination provisions will be unenforceable and the Employer will be required to pay common law notice (which is significantly higher then the statutory minimums in the ESA).

Following Waksdale, this has had an effect and expanded to federally regulated employers. In the case of Sager v TFI International Inc., the court held that the termination provision was unenforceable and ordered common law notice.

Mr. Sager was terminated on a without cause basis. Within his employment contract there was termination provision which provided that the Employer could terminate without cause by giving Mr. Sager the greater of three month’s base salary or one month base salary per year of completed service to maximum of 12 months and was inclusive of any all requirements owed to the Employee under the Canada Labour Code (“CLC”). The amount of notice or payment in lieu of notice surpasses what was required in the statutory minimums of the CLC.

Under section 231(a) of the CLC the employer cannot reduce the wages or alter any other term or condition of employment of the employee to whom notice was given except with written consent of the employee. Mr. Sager argued that the termination clause is unenforceable as it relieves the Employer of its statutory obligation to maintain all terms of his employment during his notice period including: pension contribution, continuing benefits, car allowance, vacation pay and paying his bonus.

The court held that the termination clause limited the Employer’s obligation to one lump sum payment and excluded any payment on termination for Mr. Sager’s pension, car allowance, bonus, and continuing benefits which were all the terms and conditions of Mr. Sager’s employment. The Judge held: “In my view, the meaning of the agreement it clear: Mr. Sager was entitled to a payment equal to three months of his base salary and nothing more during the notice period. This amounts to a change in Mr. Sager’s terms of employment during the notice period, which is inconsistent with s. 231(a) of the [CLC].” The court awarded Mr. Sager common law notice.

These two cases are particularly important for Employers as it can have significant impact on the amount payable to an employee who was been terminated. Generally speaking, common law notice is significantly more than the statutory requirements in the legislation. Employers should regularly speak with their lawyer to ensure the validity of their Employment Contracts.

Should you have any questions in regard to the validity of your Corporation’s Employment Contract please contact the lawyers at Sicotte Guilbault.