Early Termination Clause Invalid – Employee Entitled to Balance of 3-year Fixed Term Contract
February 22, 2022
In a recent decision of the Ontario Superior Court of Justice, the principles in the now infamous Waksdale v. Swegon North America Inc., 2020 ONCA 391 decision were applied to a fixed term contract, striking out a termination clause where the ‘for cause’ termination provision was broader than permitted by the Ontario Employment Standards Act, 2000 (“ESA“) to disentitle an employee to statutory entitlements. The result was that the employer was required to pay the balance remaining on a 3-year fixed term contract, which was 16 months, and that the employee’s entitlement was absolute and not subject to mitigation as is generally the case with termination of fixed term contracts.
The interesting twist in this case is not only the fixed term nature of the employment agreement, but the fact that the agreement was negotiated as a part of, and in the context of, a commercial transaction. The transaction involved two businesses in which the employee had an interest, being sold to the employer. Both parties were sophisticated business people (the employee having a medical degree), and were represented by legal counsel in relation not only to the overall share purchase transactions, but also in relation to the employment agreement.
It was the employer’s position that even if the termination clause violated the ESA, the premise underlying the line of authorities in question, namely the imbalance of power between employers and employees, did not arise here.
The Honourable M. Justice W.D. Black declined to accept these circumstances as justification to enforce the agreement. The court held:
“In Fred Deeley, at para. 28, Justice Laskin, noting the presumed power imbalance, cited some general principles to be applied in this setting, including:
- The ESA is remedial legislation, intended to protect the interests of employees. Courts should thus favour an interpretation of the ESA that “encourages employers to comply with the minimum requirements of the Act” and “extends its protections to as many employees as possible” (citing Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC),  1 S.C.R. 986, at p. 1003);
- Termination clauses should be interpreted in a way that encourages employers to draft agreements that comply with the ESA. If the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship (citing Machtinger, at p. 1004);
- A termination clause will rebut the presumption of reasonable notice only if its wording is clear. Employees should know at the beginning of their employment what their entitlement will be at the end of their employment (citing Machtinger, at p. 998);
- Faced with a termination clause that could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee (citing Ceccol v. Ontario Gymnastics Federation (2001), 2001 CanLII 8589 (ON CA), 149 O.A.C. 315 (C.A.); Family Counselling Centre of Sault Ste. Marie and District (2001), 2001 CanLII 4698 (ON CA), 151 O.A.C. 35 (C.A.)).
 While, as noted, I appreciate that these principles start from a presumed power imbalance, they strike me as providing guidance which, generally speaking, is not onerous for employers to follow.”
The suggestion of different standards of interpretation of employment agreements based on sophistication of the parties and whether they had legal counsel was seemingly, in this court’s view, a slippery and dangerous slope which the court did not see fit to embrace. Yet another failed attempt to circumvent the extreme consequences of Waksdale.
Livshin v. The Clinic Network Canada Inc., 2021 ONSC 6796