A Cautionary Tale: Review your Employment Contracts

A recent case from the Court of Appeal in Ontario is a cautionary tale in having your employment contracts prepared and regularly reviewed by legal counsel. In Waksdale v Swegon North America Inc. 2020 ONCA 391 the Court found a “for cause” termination clause void because it did not comply with Ontario employment standards legislation. The Court also found that this rendered a “without cause” termination clause that limited the employee’s severance pay void, entitling the employee to significantly higher severance pay at common law. In January, 2021 the Supreme Court of Canada denied leave to hear an appeal of the case, potentially rendering unenforceable similar termination provisions in employment contracts in Ontario.
The impact of the case in BC is uncertain. The courts in BC have so far taken a less restrictive approach in interpreting termination clauses. The applicable language of the BC employment standards legislation is also different from the Ontario legislation. The Ontario Court of Appeal is however highly respected across the country. It is therefore prudent that BC employers review their employment contracts to mitigate the risks of the law in BC moving in the direction taken by the courts in Ontario on this issue. The Ontario case also underlines the importance of BC employers implementing carefully worded written employment contracts with their employees.
Cause is very difficult to establish under the common law. As revealed by the Ontario case, cause termination clauses may be strictly interpreted by the courts and must be carefully drafted. In view of the risks associated with a cause termination, most terminations will be without cause. Absent a proper written agreement, an employer’s severance pay obligation on such a termination will be based on the common law factors of age, length of service, position of the employee, and the availability of other similar employment. In BC the maximum severance entitlement is generally considered to be 24 months absent exceptional circumstances. This significant common law obligation can be restricted by having a properly worded written contract with an employee that includes a without cause termination clause that limits severance to the minimum required by the BC employment standards legislation or some higher amount acceptable to the parties.
In addition to cause and without cause termination issues, other issues that often arise with respect to a written employment contract are:
1. important clauses are missing (e.g. termination); 
2. clauses are not worded properly or are dated; 
3. the contract is not signed;
4. no consideration is provided for the contract; and
5. the contract does not accurately reflect the working relationship (e.g. the contract indicates an independent contractor relationship, when the relationship is actually one of employment).

Please do not hesitate to contact us with any of your employment-related questions and inquiries, including a review of your current employment contracts. We appreciate your loyalty and thank you for using our legal services.