Oct 22, 2020
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Another Victory for Employees – Cavalluzzo LLP Obtains Important Ruling Regarding Unfair Termination Clauses

Cavalluzzo LLP lawyers Stephen Moreau and Genevieve Cantin recently represented the employee in Sewell v. Provincial Fruit Co. Limited, a wrongful dismissal case involving the interpretation and enforceability of a termination clause.

Any cases involving termination clauses is a big deal.  Normally, when an employee is terminated, they are owed usually significant amounts to compensate them for the loss of what is known as "common law reasonable notice".  Termination clauses are designed to take away those rights and replace them with much narrower benefits for employees.  Interpreting a termination clause a certain way or saying that it is or is not enforceable can have a massive impact on an employee at a very difficult period in their life.

The Significance of the Sewell Decision

The Sewell decision is significant as it is the first Ontario Superior Court case that applies the precedent established in the widely discussed June Ontario Court of Appeal decision in Waksdale v. Swegon North America Inc, which dealt with the enforceability of termination clauses.  Waksdale sent a seismic ripple across the employment law world, effectively rendering many termination clauses in employment contracts null and void.  Sewell is the first to apply the Waksdale principle to a more typical termination clause.

There are some valuable lessons to be learned from both decisions.

In Waksdale, the court ruled the “for cause” termination clause was unenforceable since it did not provide for the minimal payments demanded by the Employment Standards Act (ESA), even in cases of cause.  According to Waksdale, once the "for cause" clause is void, the rest of the termination clause is void too.  The other parts of termination clauses are ones employers rely on to try and limit their liability to employees they terminate.

Agreements cannot be read on a ‘piecemeal basis’

According to Waksdale, “An employment agreement must be interpreted as a whole and not on a piecemeal basis” and [w]hile courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal … it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked.

The Superior Court justice in Sewell echoed that sentiment, ruling that, “Courts …should exercise their discretion in favour of protecting employees and must look at the employment agreement as a whole, over its entire expected duration, to determine whether it satisfies the minimum requirements of employment standards legislation.

Referring directly to the Waksdale decision, the judge noted in Sewell, “I find that the “Termination for Just Cause” provision of the contract was illegal insofar as it contracted around the ESA requirement to provide notice except in cases where an employee engaged in ‘willful misconduct.’ Based on the Court of Appeal’s reasoning, I must read the contract as a whole and set it aside if one or more of the terms are illegal, even if the offending term is not at issue in the instant case.”

This was an important victory for Mr. Sewell, as the court awarded him four months of pay and benefits at common law as opposed to the two weeks in lieu of notice he would have received had the clause been applied.

Be honest when hiring

In her ruling, the judge said Mr. Sewell signed the agreement without fully understanding the termination agreement, trusting it would comply with provincial labour legislation.

“The ‘termination’ clauses … were never explained to him,” the judgment states. “Given the power differential between the parties and the good faith basis upon which they had established their relationship, I accept that it was reasonable for the plaintiff to sign the contract without parsing out the potential meaning of the termination provisions or seeking independent legal advice.”

Employers and their legal counsel across the province should pay special attention to this part of the judgment, as it is very common for companies not to explicitly discuss termination clauses with people they are hiring.  Employers should be honest when they want to hire an employee and explain that, while they want to hire the person, "we also want to be able to fire you with little compensation.”

Both of these rulings are great news for employees. Plus, they will likely keep counsel advising employers busy as they rewrite termination clauses that have now been clearly identified as being unjust and unfair.

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