Due to recent developments in the Courts, updates to the Employment Standards Act (the “ESA”), and workplace changes due to COVID-19, which have had a direct effect on the employment agreements of most Ontario employers, employers have increasingly sought to update their employment agreements with current employees as well as potential new hires.
Currently, we find that most employers are seeking to update their employment agreements to modify termination clauses, to ensure compliance with the ESA, to modify or remove restrictive covenants such as non-competition agreements, and to include policies related to COVID-19, such as vaccination policies.
One of the most recent significant developments arose due to government changes to the ESA, which caused the use of non-competition clauses in employment agreements to be ineffective in the vast majority of cases. As a result of the ESA changes, any non-competition provisions and agreements entered into between employees and employers will be voided if entered into on or after October 25, 2021. The new rules provide very limited exceptions, reserved for senior executive employees and for previous business owners retained as employees after the sale of a business. Because of this, employers are seeking to remove non-competition clauses from their agreements where necessary, modifying restrictive covenants into non-solicitation agreements, or seeking advise regarding whether specific employees meet the exemptions set out by the ESA. You can see our blog on these ESA changes and their effect here.
Additionally, recent case law developments concerning termination clauses in employment agreements have rendered the commonly used language of “for cause” termination provisions to become void. Previously, most employers would include a termination provision in their agreements which indicated that an employee could be terminated without notice, pay in lieu thereof, or severance, where the employer had “just cause”. In this context, “just cause” or “for cause”, meant that where an employer determined that an employee breached the terms of the employment in a substantial way, generally because of incompetence, insubordination, and/or severe misconduct, the employer could terminate the employee without notice or pay in lieu thereof.
However, the Ontario Court of Appeal, in Waksdale v. Swegon North America Inc., found that the terms “just cause” or “for cause” violated the minimum standards set out in the ESA. The Court in Waksdale held that the term “for cause” represented a lower standard than the “wilful misconduct” standard required by the ESA to terminate an employee without notice. As a result, any termination provision which indicated that the employer could terminate an employee without notice “for cause” became void, as it was now contrary to the ESA. The Court in Waksdale went further and determined that where a termination provision included language that was contrary to the ESA, all termination provisions in the agreement were voided, not only the impugned provision.
The Court’s finding in Waksdale had a significant impact on employment agreements. Termination clauses generally include two provisions, being (i) termination without notice, or “for cause”, and (ii) termination with notice, or “without cause”. The “without cause” provision is commonly included in employment agreements to determine/limit from the outset the amount of notice required for terminating an employee. For example, such clause may indicate that where an employee is terminated without cause, he or she will be entitled to no more than the minimum ESA standards. As long as the “without cause” provision provides an employee with at least the same notice of termination entitlements as the ESA, or more, they will generally be enforceable. Where a provision is not included to limit notice requirements, or it is voided by the Court, the employee is entitled to common law notice, which is generally greater than ESA notice.
As a result of the Court’s judgement in Waksdale, where an agreement contains a termination clause indicating that an employee can be terminated without notice “for cause”, the “without cause” provision will be voided as a result. This is so even where the “without cause” provision would be otherwise valid and enforceable, and even where the employer is not relying on the “for cause” provision. Consequently, given the very common use of “for cause” clauses for termination without notice, the “without cause” provisions of many, if not most, employment agreements are now unenforceable, and will not serve to limit notice requirements. Instead, many employers may be liable for the greater common law notice, even where they do not assert to have terminated an employee “for cause”.
Lastly, as was expected, the COVID pandemic has impacted workplaces in very significant ways, and this has been reflected in employment agreements as well. Most noticeably, most employers are now seeking to change their agreements to include vaccination policies and requirements for current and future employees. Generally speaking, employers are permitted to require that prospective employees provide proof of COVID vaccination in order to formalize an offer of employment. Such requirements must be compliant with the Human Rights Code. For example, any agreement requiring proof of vaccination must contemplate valid medical or religious exemptions. You can see our article on COVID vaccination policies here.
Due to general rules regarding contracts, including employment agreements, such as the requirement to provide “consideration”, meaning something of value such as money or a benefit, modifying the employment agreements of existing employees is a more complex undertaking. For example, in order to incorporate a vaccination policy, change the termination provisions of an agreement, or include a new restrictive covenant, in the contract of an existing employee, the employer would have to provide consideration in order to entered into what is essentially a new employment contract with the employee. Otherwise, the Court would not consider such agreement as valid, as continuation of employment has been deemed to not constitute valid consideration.
As lawyers with expertise in employment law, we often advise employees regarding their rights pursuant to their contracts and their enforceability. We also assist employers in drafting valid employment contracts for future potential employees in accordance with the most up to date case law and statutory obligations, as well as guide employers through the process of modifying the agreements of existing employees where required.
Employers and employees may contact us at any time regarding their employment contract questions and needs.
