Ontario Court Voids Entire Termination Clause due to “Just Cause” Reference

Sewell v Provincial Fruit Co. Limited – Following Waksdale, Ontario Court Voids Entire Termination Clause due to “Just Cause” Reference

Overview:

In Sewell v. Provincial Fruit Co. Limited, 2020 ONSC 4406 (“Sewell”), the first decision post-Waksdale, Justice Mandhane followed the Ontario Court of Appeal’s ruling in Waksdale v. Swegon North America Inc., 2020 ONCA 391 (“Waksdale“), stating that the termination provision in Mr. Sewell’s employment contract was illegal, and therefore void and unenforceable due to its reference to “just cause”.

This decision serves as another reminder that “Just Cause” provisions in employment contracts should be drafted with the utmost care, failing which, employers run the risk of having their entire termination clause rendered void and unenforceable.

In Sewell, the Court awarded Mr. Sewell four (4) months common law reasonable notice.

Motion for Summary Judgment:

Mr. Sewell brought a motion for summary judgment seeking his full termination entitlements at common law. The Court determined that the termination for cause clause in Mr. Sewell’s employment contract violated the minimum standards set out in the Ontario Employment Standards Act (“the ESA”), and was therefore illegal and unenforceable, pursuant to the principals outlined in the Waksdale decision.

The ESA requires a higher threshold for just cause, limiting just cause terminations to “willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer”. As a result, employers may not rely on termination clauses to terminate for “just cause”, and provide no termination entitlements, when the termination does not involve the ESA specified instances.

Further, Mr. Sewell’s without cause termination provision was also illegal and unenforceable because it purported to combine notice and severance pay entitlements, in direct violation of the ESA’s requirement to pay both notice and severance.

Ruling:

Since the termination clause was illegal and unenforceable, the Court awarded four (4) months common law reasonable notice to Mr. Sewell, a forty-five (45) year old senior sales rep, with six (6) months of service.

Lessons Learned:

For Employees:

The ESA outlines a very high threshold to terminate for just cause, and the language in your employment contract must comply with the ESA in order to be enforceable. In light of these recent decisions, many employment contracts are illegal and will not be enforceable. If you have been terminated from your employment, it is critical that you seek the advice of an employment lawyer to determine whether your employment contract is enforceable.

For Employers:

The Waksdale and Sewell, decisions have had a profound impact on the enforceability of many employment contracts in Ontario, rendering many void and unenforceable. We strongly urge employers to seek legal advice to review and reconsider the language in their employment agreements and templates, to ensure that they are compliant with the current state of employment law.