Unclear Limiting Clauses Can Lead to Unexpected Liability but Clear Well Drafted Clauses Remain Enforceable

Recent court decisions in Ontario highlight the importance of carefully drafted employment contracts and termination agreements. Employers must review their employment contracts to ensure compliance with the Employment Standards Act, 2000 (ESA), or risk having them deemed unenforceable. Employees, on the other hand, should have their contracts and termination agreements reviewed before signing, as they may be entitled to more notice than what is being offered.

The Impact of Waksdale v. Swegon North America Inc.

In the landmark case Waksdale v. Swegon North America Inc., the Ontario Court of Appeal ruled that an unenforceable “Termination for Cause” clause rendered the entire termination provision void, even though the “Termination of Employment with Notice” clause complied with the ESA. The court emphasized that termination provisions must be read as a whole, rather than assessed individually. If any part of the termination provisions violates the ESA, the entire provision is invalid.

This ruling has serious implications for employers who have not updated their contracts in light of this decision. Employers can no longer simply assume that they are protected from liability based on employment contracts with outdated or non-compliant language.

For employees, this case underscores the need to review termination packages before signing. A termination clause that appears to comply may still be invalid if another termination or related clause in the contract contravenes the ESA. As a result, employees could be entitled to significantly more notice or compensation than initially offered.

Fixed-Term Contracts: Slightly Different Rules Apply

However, it is important to note that Waksdale does not necessarily invalidate a fixed-term employment agreement.  For example, in Kopyl v. Losani Homes (1998) Ltd. the Ontario Court of Appeal ruled that even if a termination clause is unenforceable, the fixed-term nature of the contract remains valid. The result? The employee was entitled to compensation for the entire unexpired portion of the fixed-term contract, without any duty to mitigate.

This decision is a cautionary tale for employers who use fixed-term contracts: if the contract does not include a valid and enforceable early termination clause, the employer may be required to pay out the remainder of the contract term upon termination.

Properly Written Termination Clauses Can Still Limit Entitlements

Despite these rulings, properly drafted termination clauses can still effectively limit an employee’s entitlements upon termination—so long as they are clear, unambiguous, and fully compliant with the ESA. Both the “for cause” and “without cause” clauses must fully be compliance.  If one fails, both will be found to be unenforceable.  This was reaffirmed in Bertsch v. Datastealth Inc., where the Ontario Superior Court upheld a termination clause that explicitly stated the employee would only receive the minimum entitlements under the ESA. The court found the language to be clear and enforceable, rejecting the employee’s claim for additional damages.

This case serves as a reminder that employers can still limit common law notice entitlements through well-drafted contracts. However, the language must be precise, leaving no room for ambiguity or potential contravention of the ESA.

How D&DCPD Human Resources Consultants Can Help

With these legal developments in mind, employers should proactively review and update their employment contracts to ensure compliance with the ESA and avoid costly litigation.

D&DCPD Human Resources Consultants can assist businesses in:

• Reviewing and revising existing employment contracts to ensure enforceability

• Drafting new employment agreements that protect the organization while complying with the ESA

• Providing guidance on fixed-term contracts to mitigate financial risks

  
  

For employees facing termination, D&DCPD can:

• Review employment contracts to determine if termination clauses are valid

• Assess termination agreements to ensure employees receive their full entitlements

• Negotiate on behalf of employees to secure better severance packages where applicable

  
  

Final Thoughts

The legal landscape for employment contracts and termination agreements is evolving, and both employers and employees must stay informed. Employers should take immediate action to review their contracts, and employees should seek professional advice before signing any termination agreement.

D&DCPD Human Resources Consultants are here to help ensure compliance and protect your rights. Contact us today for a consultation to safeguard your business or your entitlements as an employee.