Your employment contracts are one of the most important documents for your company.
The employment contract details the particulars of employment. The contract provides the start date, the wage rate, entitlement to compensation over and above base salary and the obligations once employment has ended. The employment contract can be used to specify non-competition obligations as well as ownership of products and intellectual property developed during employment. The employment contract also specifies how the employment can come to an end.
Employment contracts typically include three different ways for the relationship to come to an end. Termination through resignation with a specified amount of notice, summary termination for cause, and notice required in terminations without cause. Providing contractual terms regarding all of these provides employers with certainty, limiting exposure to liability and limiting the potential for litigation. The law is constantly evolving though and that evolution can remove the certainty that you had hoped to achieve through your employment contracts. An annual review and update of your employment contracts can provide you with certainty and the peace of mind that led you to develop the contracts in the first place.
Employment contracts can be amended during the course of an employee’s employment. Revisions will be enforceable provided the requirements for enforceable contracts are satisfied. The contract must provide at least the statutory minimums required by the relevant employment standards legislation. Additional enforceability requirements include offer, acceptance and consideration. Evidence of offer and acceptance is found in the written contract and the signature of the employee. The requirement for consideration can be satisfied through provision of a nominal payment or enhancement of the terms of the employment.
In 2020 the most significant evolution in the law of employment contracts came from a case in Ontario called Waksdale[i]. The Supreme Court of Canada declined to hear the case, leaving the Ontario Court of Appeal decision as the final word. Mr. Waksdale had an employment contract that had provision for Termination for Cause and a second clause for Termination without Cause. The Termination for Cause clause violated the relevant employment standards legislation and therefore was not enforceable, although that was not the clause used to terminate Mr. Waksdale. The issue for the court was whether the fact that the Termination for Cause clause was unenforceable also resulted in the Trmination without Cause clause being unenforceable, even though that clause did not violate employment standards legislation.
At the trial level, the court found that the two clauses could be considered separately and the unenforceability of the Termination for Cause clause did not effect the enforceability of the Termination without Cause clause. Mr. Waksdale had been terminated without cause so the trial court held that the termination without cause clause governed Mr. Waksdale’s entitlements on termination. Mr.Waksdale appealed, arguing that the termination provisions needed to be read as a whole and the unenforceability of the Termination for Cause clause also invalidated the Termination without Cause clause.
The Court of Appeal disagreed with the trial court and found that the two clauses could not be considered independently but rather agreed with Mr. Waksdale’s position. Specifically, as the Termination with Cause clause was unenforceable the employer also could not rely on the Termination without Cause clause to limit their liability.
For employers this decision means that employment contracts should be reviewed and revised. Confirmation that all provisions of the employment contract are compliant with statutory requirements should be made. Many contracts are written with a saving provision which provides that if any clause is found to be unenforceable it will not effect the remaining provisions. The Court of Appeal decision in Waksdale decreases the value of such provisions and increases the likelihood that a court will find all provisions to be unenforceable in the event of a violation of statutory requirements of any provision. At the very least, the Waksdale decision will result in careful scrutiny of all provisions relevant to termination. The decision will lead to courts not simply assessing the provision relied on, rather the court will scrutinize the entire contractual terms for enforceability. The termination provisions in particular will be assessed as whole, not on the individual parts as has been done in the past. If the termination provisions contain an unenforceable aspect, there is significant risk that the termination clauses as a whole will be thrown out.
From a practical perspective, the existence of any unenforceable aspect of an employment contract will significantly increase the risk of litigation following termination and the certainty that is the goal of the written contract will be eliminated. Contractual provisions should be reviewed and revised for compliance, providing the certainty that the contract was intended to provide.
[i] Waksdale v. Swegon North American Inc. 2020 ONCA 39