Employers Beware – Employment Contracts and Waksdale v. Swegon North America Inc., 2020 ONCA 391

Last year, the Ontario Court of Appeal in Waksdale v. Swegon North America Inc., 2020 ONCA 391, slapped employers across the face causing an upheaval in employment law, resulting in the possibility that your employment contract might no longer be enforceable. Specifically, employers may be required to review and revise their termination provisions with their employees, otherwise, upon termination, the employer may find themselves paying a lot more to the employee than anticipated.

In Waksdale, the employer terminated Mr. Waksdale “without cause”. Pursuant to his employment agreement with the employer, the termination clause provided that the employer only had to pay him the minimum statutory entitlement set out in the Employment Standards Act. Mr. Waksdale was only employed for eight (8) months, thus under the ESA, he was only entitled to one (1) week pay-in-lieu of notice. Rather than accept this, Mr. Waksdale brought an action against his employer for six (6) months pay-in-lieu of notice under common law.

At trial, counsel for Mr. Waksdale argued that the termination clause was void, and thus the employment contract was unenforceable. Specifically, that a separate “termination for just cause” clause elsewhere in the employment agreement contravened Regulation 288/01 of the ESA Regulations. The Ontario Court of Appeal agreed and held that the wording in the “termination for just cause” section was inconsistent with the ESA Regulation, and that alone voided the remaining termination provisions in the employment contract.

“That’s Fine, I have a Severability Clause” No, apparently it is not fine.  Despite the employment agreement in Waksdale having a severability clause, the Court of Appeal declined to apply it since it would not have any effect on a contract term which was void by statute.

What Is Just Cause Then?

The Courts have held that “just cause” includes actions where an employer can terminate an employee without paying reasonable notice at common law.  These include actions by the employee such as dishonest conduct, insubordination, violence, sexual harassment, harassment, repeated breached of employee policies etc.  However, even though the employee is not entitled to common law reasonable notice, they still entitled to be paid ESA notice and severance.

Employers may only terminate an employee without pay where the employee has been guilty of, “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”  In order for your employment agreement to be enforceable, it must explicitly distinguish between termination for “just cause” and termination for “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.”  Because of the decision in Waksdale, your “termination without cause” clause may also be unenforceable, and that the termination provisions in an employment agreement must be read as a whole to determine whether it violates the ESA, rather than on a piecemeal basis.

Revising Your Employment Agreements

As a result of the decision in Waksdale, as an employer, you should consider immediately reviewing your existing employment agreements to ensure that they are in compliance with the ESA.

In the event that the employment agreement violates the ESA, you should consider entering into a new employment agreement with an enforceable termination clause. However, you must always remember that if you are amending the employment agreement, you must offer fresh consideration such as pay increase, bonus, promotions, additional vacation time, or some other benefit to the employee.

To find out more about how to protect yourself or if you need assistance navigating your employment agreement, contact us by phone at 905-471-6161 or email us at info@eruditelaw.com.

Employment Expenses

Employee deductions and expenses as an owner-employee.

While employees at arms-length have been permitted to deduct certain employment expenses pursuant to section 8 of the Income Tax Act, the Canada Revenue Agency has taken issue with employees who are also shareholders of the corporate employer.  That is, employees who are sole directors, shareholders and officers of the corporation have been increasingly scrutinized by the CRA.

Back in 2009, the case of Adler v. R, 2009 TCC 613 (informal procedure), the Tax Court of Canada held that since the appellant was the sole officer, director and shareholder of his employer, a refusal to incur the job related expenditures would yield no adverse consequences for him.  On the basis of this reasoning, the Court dismissed the appeal.

  1. So can I deduct my employment expenses?

It is arguable that this case should be limited to its facts and possibly not applicable in all situations.  Firstly, the decision in Adler is silent on whether there was an employment contract in place explicitly requiring the employee to incur certain costs.  Secondly, the Courts interpretation of “adverse consequences” is quite narrow indeed, appearing to be limited to an action for breach of contract, disciplinary action, and / or poor performance review – quite simply, this cannot be true as there may be negative financial consequences such as lost profits, inability to meet third party obligations, or the inability to pay salary to arms length employees.

  1. What is required before I deduct employment expenses?

One thing is certain, section 8 of the ITA details some specific requirements before any employee can deduct certain employee expenses – among other things, a good starting point is to always have an employment contract with specific provisions detailing what are the requirements of the job is and what expenses the employee may be responsible for without reimbursement.

If you are a sole director, shareholder, and officer of a corporation and are considering becoming an employee of your corporation, let the lawyers at Erudite Law LLP assist you in reviewing your options.  Please feel free to contact us – https://eruditelaw.com/#contact.