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There is no doubt that COVID-19 dominated the headlines in 2020. This included a range of significant employment law decisions at both the provincial and national levels.

We have accordingly reviewed the top three cases that we believe shaped employment law in 2020 and included feedback regarding implications these cases will have on the workplace in the upcoming year, particularly with respect to wrongful dismissals and entitlements upon termination of employment.

Severability of Termination Clauses and Employment Contracts

In Waksdale v. Swegon North America (“Waksdale”), the Ontario Court of Appeal (“ONCA” or the “Court”) provided guidance on the severability of termination clauses and employment contracts.

For context, Mr. Benjamin Waksdale was dismissed without cause following eight (8) months of employment and subsequently sued for wrongful dismissal, seeking his common law entitlements.

At issue before the Court was whether an otherwise enforceable “without cause” termination provision in an employment agreement would be deemed unenforceable in light of an invalid “just cause” termination provision. Specifically, Mr. Waksdale’s employment agreement contained an illegal “just cause” termination provision, which attempted to contract out of his employer’s obligations under Ontario’s Employment Standards Act, 2000 (“ESA”).

Ultimately, the ONCA found that an employment agreement is to be interpreted as a whole and not on a piecemeal basis. Specifically, the Court found that termination provisions in an employment agreement must be read as a whole (meaning including the for cause and without cause sections) and as a result courts shall not enforce any provision that is in whole or in part in contravention with the ESA, even where the employer is not seeking to rely on that particular provision. This principle applies whether the provisions are found together, separated or otherwise linked. Accordingly, the Court found that the termination provisions in Mr. Waksdale’s employment agreement were unenforceable as a result of a “just cause” termination provision that was deemed to be unenforceable, and therefore he was entitled to common law notice for the termination of his employment.

In light of the Waksdale decision, employers would be wise to review their employment agreements and to pay particular attention to the enforceability of their “just cause” termination provisions. Case law suggests that in revising this provision, employers should be mindful that the threshold for “just cause” terminations differs at common law and under the ESA. Under the ESA, the relevant threshold for “just cause” termination includes “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”. As a result, employers wishing to implement a “just cause” termination clause, regardless of whether it is relied on upon termination, must ensure that it does not violate the ESA, or employers seeking to decrease their liability may fail to limit their employees’ entitlements exclusively to minimum standards upon termination.

Likewise, employees who are dismissed on a “without cause” basis are encouraged to review their employment contracts, and the termination provisions in particular, with an experienced employment lawyer, to ensure that they are securing their appropriate entitlements upon termination and to assess whether or not there has been a wrongful dismissal.

Entitlement to Incentive Payments During the Reasonable Notice Period

Recent case law provides clarity with respect to whether an employee is entitled to incentive payments during the reasonable notice period.

The Supreme Court of Canada, in Matthews v. Ocean Nutrition Canada Ltd. (“Matthews”), specifically clarified entitlements to various elements of compensation, including, but not limited to, commissions, performance bonuses and stock options, in the event of a termination of employment on a without cause basis.

For background, Mr. David Matthews was constructively dismissed following nearly 14.5 years of employment with the Defendant. As part of his employment, Mr. Matthews was eligible to participate in the company’s Long-Term Incentive Plan (“LTIP”), which provided certain entitlements/payments to employees upon the occurrence of a “Realization Event”, such as the sale of the company. Following Mr. Matthews’ departure, the company sold, constituting the “Realization Event” under the LTIP and triggering the bonus payments for qualifying employees. The Defendant took the position that Mr. Matthews was not entitled to the bonus because he was not actively employed at the time of the “Realization Event”.

The Supreme Court ultimately found that it is an implied term of all employment agreements that an employee receives reasonable notice upon termination unless otherwise limited by contract. Employees dismissed without reasonable notice are entitled to damages, which includes all salary, bonus, and other entitlements that an employee would have earned had the employee continued to work throughout the notice period. Given that the “Realization Event” occurred during the reasonable notice period, Mr. Matthews was entitled to receive the LTIP payment.

Furthermore, through Matthews, the Supreme Court confirmed the following two-part test to determine whether an employee is entitled to continue to receive incentive pay during the reasonable notice period:

  1. Would the employee normally be entitled to the bonus or benefit as part of their compensation during the reasonable notice period?
  2. If so, do the terms of the employment contract or bonus plan ambiguously remove or limit that common law right?

In light of the Matthews decision, and consistent with the Ontario’s Superior Court of Justice (“SCJ”) decision in Kerner v. Information Builders (Canada) (“Kerner”), employers who wish to limit and/or exclude an employee’s incentive payment upon termination should be mindful of the language used when drafting employment and incentive agreements. Specifically, the SCJ ruled in Kerner that employers should use language that is clear and unambiguous and does not allow for various interpretations in order for the provision to be found enforceable.

For example, employers may consider establishing clear definitions around the termination date to limit the period within which entitlements are owed. This can pertain to changes to current or future employment and/or incentive agreements.

Likewise, employees whose employment has been terminated and have not received any incentive compensation that they would have received had they worked throughout the notice period, are encouraged to seek advice from an experienced employment lawyer.

Takeaways

The court decisions of 2020 have provided clarity to several employment law principles and reinforced the notion that employment agreements, particularly those containing ambiguous provisions, will be interpreted against the employer.

If you are an employee who has been wrongfully dismissed and would like to consult with an employment lawyer or alternatively, if you are an employer looking to revise your employment agreements in light of the recent developments, please contact Toronto employment and immigration lawyers, Sultan Lawyers, at (416) 214-5111 or via email to mlahert@sultanlawyers.com.


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