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New Employment Case Terrible for Dentist Employers!

Terrible for dentist employers.  Just Terrible!  That’s what I think of the recent Ontario Court of Appeal case of Benjamin Waksdale vs. Swegon North America Inc. 2020 ONCA 391 (decision released June 17, 2020).

I am not sorry for saying that the Ontario Court of Appeal got this case DEAD WRONG.  I repeat: wrong as wrong could be.  And if this decision is not OVERTURNED on appeal to the Supreme Court of Canada (or distinguished by future courts so that’s it a one-off that everyone can ignore), it may very well set a VERY BAD PRECEDENT for ALMOST ALL employers.  Including you – dentist employers!  Not good news for dentists at all.  And now, because of this terrible decision, dentist employers are going to pay.  They have to pay employment lawyers to take action to correct their once valid agreements OR they will pay a LOT MORE later on if they try to rely upon their valid termination with notice clauses and find them to be unenforceable!!!!

So here’s why this case is sooooo bad.  It basically says that, if you’re trying to terminate an employee and give them what they’re entitled to in their written contract, then if you BY CHANCE HAPPEN to have another termination clause in the same contract that you DON’T RELY UPON but which could be offside the law (but have never been offside until now), then the termination section in your contract that you’re trying to rely upon is ALSO ILLEGAL and will be thrown out by a Court.  Waaaaaahhhhhhh??????  [insert: eyes wide opened / mouth gaping emoji].

The result of having your KEY termination provision rendered INVALID because of such nonsense is that a dentist employer may now very well OWE the employee that dreaded common law notice: roughly 1 month of the employee’s pay per year of their service, up to 24-26 months!  This adds up to a ridiculously high amount that would have to be shelled out.  JUST TERRIBLE!   Especially considering that part of the reason for having an employment agreement in writing in the first place was to reduce the notice period for terminating an employee to just 1 week of service for each year of service but only up to 8 weeks to match up with the Employment Standards Act, 2000 (and do away with the common law standard).  So if an employer dentist wants to terminate an employee and doesn’t have a good enough reason and just needs to let them go (oh, I don’t know, because a Pandemic let’s say has ravaged their practice), then they may owe them COMMON LAW notice or payment in lieu of notice EQUAL to 1 month of pay per year of service, up to 24-26 months!  JUST TERRIBLE!

I apologize in advance if the following gets confusing but I’m going to go into a lot of detail about employment law to help you understand what this recent decision truly means so you sleep better at night (or perhaps not).  We’re going to go into a lot of detail to help you sleep better at night (or perhaps not).

Most employment agreements have a bunch of terms dealing with termination.  Here are some examples:

  1. Termination “for Cause”: if the employee conducts themselves in a particularly terrible way, and here are some examples (stealing, committing fraud, being convicted of a serious crime, purposely damaging property, being wilfully insubordinate, etc.), then the employer can terminate their employment IMMEDIATELY and without providing any working notice or payment in lieu of notice.
  2. Termination “by Notice”: if the employer just wants to terminate an employee, they can give them a set amount of notice, or payment in lieu of notice, plus other entitlements and benefits that are AT LEAST what the employee would be entitled to under the Employment Standards Act, 2000.
  3. Termination at the end of a set term that expires without being renewed / extended.
  4. Termination by mutual agreement of the parties.

Now, let’s say that an employer has a bunch of these standard “termination” clauses in their agreements (and any employment agreement that’s worth anything will have these clauses). We at DMC have prepared countless employment agreements with such clauses in them.

Now, let’s say an employer, like a dentist, has employment contracts for all of their employees and the contracts include these standard “termination” clauses and wants to let one of the employees go. What next? Here’s what happens next, assuming you don’t want a fight and you have no ill-will against the employee, it’s just that for whatever reason, things aren’t working out. So you trigger the “Termination by Notice” section. The way that section is drafted is good enough for the courts to uphold. It’s clear, complete and follows the minimum standards set by the Employment Standards Act, 2000.

So then, in some weird twist, the employee wants to do away with the “Termination by Notice” provision (perfectly legally drafted and enforceable, by the way) in order to get Common Law Damages.  So they can’t claim that that provision is illegal.  They turn to another provision – the Termination for Cause section – and say that that section is illegal.  Yes, everyone’s on the same page here: no one is relying upon / invoking that section AT ALL.  It’s completely irrelevant to the realities of the case.  But the employee still claims that that section is illegal and THEREFORE the other perfectly legal section is illegal too.  Sorry… What????  That’s the strangest claim ever put forth.  Especially when there’s ANOTHER provision in the employment agreement that says that any clause that happens to be found to be ILLEGAL is to be SEVERED from the agreement but the rest of the agreement is to remain intact.

So when the lower courts heard this argument, naturally and obviously, they came to the same conclusion: they found in favour of the employer and enforced the “Termination by Notice” clause.  Why?  Because it doesn’t matter if that “Termination for Cause” section is illegal because it wasn’t relied upon to begin with and because there was a severability clause that severed that clause from the rest of the agreement.  In fact, the employer even agreed that the “Termination for Cause” section was illegal (not sure why because the text of that clause isn’t available online).  But the employer was so confident that that clause didn’t matter that they agreed – I guess to save time arguing it – that YES that clause could be illegal but who cares since the clause they actually USED to terminate the employee was the “Termination by Notice” section.  A completely different section altogether!  Plus, there was a severability clause in the agreement that said that the Parties themselves AGREED that if any clause was found to be illegal, it was to be severed from the rest of the agreement, but that the rest of the agreement was to be left intact.

So then the case gets appealed to the Ontario Court of Appeal.  And in a very short 7 page decision, the 3 judges forever ruined employers’ lives and will now keep everyone up at night until something is done (more on that below).  Those 3 judges basically said that, because the “Termination for Cause” section is illegal, the “Termination by Notice” section is also illegal AND the severability clause doesn’t come in to save the day for the employer.  WAAAAHHHH?  How did they get there?  Here’s their FLAWED (in my opinion) reasoning:

An employment agreement must be interpreted as a whole and not on a piecemeal basis. The correct analytical approach is to determine whether the termination provisions in an employment agreement read as a whole violate the ESA. Recognizing the power imbalance between employees and employers, as well as the remedial protections offered by the ESA, courts should focus on whether the employer has, in restricting an employee’s common law rights on termination, violated the employee’s ESA rights. While courts will permit an employer to enforce a rights-restricting contract, they will not enforce termination provisions that are in whole or in part illegal. In conducting this analysis, it is irrelevant whether the termination provisions are found in one place in the agreement or separated, or whether the provisions are by their terms otherwise linked. Here the motion judge erred because he failed to read the termination provisions as a whole and instead applied a piecemeal approach without regard to their combined effect.

Following so far?  Now ALL of the termination provisions need to be perfectly legal if an employer wants to rely upon just one of them.  Why?  Because employees deserve MORE and employers can [insert expression like “Eat Dirt” or “Pound Sand” or “Fly a Kite”, etc.], that’s why (power-imbalance, remedial legislation, trying to limit an employee’s common law rights, etc.)!

It doesn’t matter that the employer didn’t rely upon the “Termination for Cause” section because it’s all inter-related.  And the Court won’t sever that clause because it’s considered illegal.  Devastating… Just Devastating!

The Ontario Court of Appeal ordered the case to be sent back to a lower court to figure out damages at common law since none of the termination provisions applied (they were all struck down).  For the employer, it could amount to WEEKS of payment plus benefits and entitlements being paid out instead of the 2 WEEKS that the employee actually received as part of his written agreement (which, by the way, was more generous than what the Employment Standards Act, 2000 would have given him because he’d only been there for ~9 months!).

So where do we go from here?

The employer, having won in the lower court decisions but lost in the Court of Appeal, MUST appeal to the Supreme Court of Canada and that Court must have final say on these shenanigans.  They must REVERSE what the Ontario Court of Appeal did so that Ontario-wide employers are not in a frantic frenzy trying to amend their employment agreements so that the termination provision which limit common law notice can ACTUALLY be relied upon.  Remember: employers who were pro-active enough to introduce contracts to their team members likely limited their own financial consequences if they had to let someone go; this cost-certainty is now up in the air as the Court of Appeal has invented damages, disregarded the written word of the contract, and gone above and beyond the minimum standards set out in the Employment Standards Act, 2000.

If the Supreme Court sides with the Ontario Court of Appeal (hopefully they don’t), then the provincial government must step in and AMEND the Employment Standards Act, 2000 to make it clear that the legality / enforceability of one clause in an employment agreement must be determined separately from other clauses UNLESS the contract itself says that it is it to be interpreted as a whole and that a severability clause doesn’t apply  or that the Employment Standards Act, 2000 does not apply or that it does not permit common law damages even in the absence of a contract.

For the time being, employer – including dentist employers – have little control over what happens next.  They can either hope and pray the Waksdale decision gets overturned on appeal or disregarded / distinguished by future courts or reversed by legislation.  But what they can do for now is engage DMC to introduce new employment agreements (if they never had any to begin with) or to amend existing DMC contracts.  In the case of new DMC contracts or amending existing DMC contracts, the idea is to REMOVE clauses that MAY be offside the Employment Standards Act, 2000More specifically, DMC recommends that any type of “Termination for Cause” section be removed entirely.  This way, an employee cannot challenge their validity in order to render other termination clauses invalid too (as is what happened in the Waksdale case).

Here’s the reality of “Termination for Cause” sections and why we believe they should come out during this time of uncertainty:

First, we generally NEVER recommend an employer rely upon terminating an employee “for cause” unless the actions taken by the employee are SO BAD that it’s warranted.  It’s just easier to give notice or payment in lieu of notice and be on your way without the threat of employment lawsuits or labour relations boards coming after you.

Second, it’s VERY DIFFICULT to get your “Termination for Cause” section to be enforceable anyways.  You see, the Employment Standards Act, 2000 has a regulation that say, if you want to terminate an employee WITHOUT giving them their statutory notice or payment and entitlements / benefits under that Act, then the employee must have been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” (section 9(1)).6).

OK…. so if you don’t write anything in your employment agreement, this minimum standard is always there.

Now here’s the problem.  Most employment agreements don’t talk about those regulations, but rather try to incorporate into their agreement what judges have previously said amounts to “Just Cause”.   And examples of “Just Cause” at common law include: violence / harassment, insubordination, dishonesty, repeated breaches of trust, etc.   Courts have said that the conduct of the employee must be so serious / extreme that it amounts to a repudiation of the employment relationship.  That’s a very high standard.

And up until the Waksfield case and the very troubling Ontario Court of Appeal decision, no one ever really thought about distinguishing between the Employment Standards Act, 2000 and the common law definitions of “Termination for Cause”.  Why?  Again, no one was really relying upon those provisions anyways.  And besides, if an employee was bad, and seriously bad, then would it matter?

But if an employment agreement doesn’t CLEARLY distinguish between the Employment Standards Act, 2000 standard for termination (“wilful misconduct, disobedience or wilful neglect of duty…”) and the Common Law examples and they just all fall within some clause that talks about “Termination for Cause” or “Termination for Just Cause”, then an employment lawyer for a terminated employee will argue that this section is trying to CONTRACT OUT of the Employment Standards Act, 2000 which is illegal (it is illegal under the Employment Standards Act, 2000 to try to have terms in an employment agreement that are worse off for the employee than what that Act provides; you can provide MORE as an employer than what the Act provides, but not less and you certainly cannot skirt your obligations at all).

So that’s the problem: a now ridiculous argument could be made that your “Termination for Cause” section is somehow trying to present a LOWER standard for termination than what the Employment Standards Act, 2000 provides AND therefore is illegal / unenforceable.  So what are your options as a dentist employer?  You could try to distinguish the 2 types of termination in your written agreement – namely:

  • the employer can terminate you for “wilful misconduct, disobedience or wilful neglect of duty…”.  So you’re basically copying and pasting the text of the regulation into your written agreement.  But why bother?  It’s already in the Employment Standards Act, 2000 and you can’t contract out of that anyways, so why bother including it at all other than to draw attention to it for some reason?
  • the employer can terminate you under a separate grounds under the Common Law (e.g. violence / harassment, insubordination, dishonesty, repeated breaches of trust, etc) but if the termination doesn’t meet the “wilful misconduct, disobedience or wilful neglect of duty…” under the Employment Standards Act, 2000 then the employer would STILL NEED to provide notice or payment in lieu of notice plus benefits and entitlements to the employee under that Act!

Keep in mind that the Common Law is always in flux as more court cases come out.  The reality is that unless the employment agreement specifically EXCLUDES (prevents the employer from relying upon) the common law rights to terminate an employee for just cause, then it’s still an option for an employer to rely upon.  So make sure that your employment agreement doesn’t accidentally remove such a clause through an “entire agreement” clause at the end that says there’s nothing outside the 4 corners of the agreement that governs the employment relationship.  And by removing any potentially offensive “Termination for Cause” section because it isn’t clear enough or contravenes the termination for cause provisions in the Employment Standards Act, 2000, then there’s no argument that the other VALID “Termination by Notice” section should be struck down as well.

Are we clear?  Probably not.  I know. It’s not easy.  You can read and re-read what I’ve written above.  But just know this: at the present time, in light of the Wakefield decision, dentists are screwed and need to take action or else they could have the “Termination by Notice” provisions in employment agreements all rendered void.  Again, our suggestion is to engage us at DMC to present a new amendment to your existing DMC employment agreement that effectively REMOVES any “Termination for Cause” or “Termination for Just Cause” provision while simultaneously preserving (i.e. not eliminating) the employer’s common law rights to terminate for cause.  Then, if an employer eventually wishes to terminate an employee, they should rely upon their well-drafted, legal and enforceable “Termination by Notice” clause without having to worry it could be struck down because of a Termination for Cause section (which would result in them having to pay out common law damages).

If you don’t have a DMC employment agreement, then we can only suggest you engage us to prepare entirely new ones.  Trying to go through and update / amend a contract written by someone else which may be dated (keep in mind that employment laws seem to be changing every 3 months!) isn’t worth your hard-earned dollars if we’re doing it on an hourly basis.  And if you never had a contract with your employees before, NOW is the time to introduce one.  Just don’t try to do it yourself.  You’ll likely get it wrong and cause yourself unnecessary financial harm.

I know this is a lot.  And I feel for you.  I just hope that Wakefield gets overturned somehow (by the Supreme Court, future courts or the Ontario legislature).  It will absolutely punish dentist employers trying to terminate team members.  It also makes absolutely no sense in light of the ongoing pandemic that dentist employers should be punished with having to pay out BIG BUCKS if they try to terminate an employee by giving them adequate notice or payment in lieu of notice, plus benefits and entitlements under the Employment Standards Act, 2000.  At least by taking affirmative action and introducing amendments to your written employment agreements, there’s less chance that the valid / enforceable “Termination By Notice” sections will be struck down because of a potentially illegal “Termination for Cause” clause.

Get it done now: either new contracts with DMC if you’ve never had one of ours before OR amend existing relatively recent DMC contracts that we prepared for your office.  Failure to do either – in light of the Waksfield case – will mean that you’ll end up giving tens of thousands of dollars to an employee if you ever want to terminate them with notice.