Does illegal just cause clause void ok without cause clause?

Not always. Only when a void Termination With Cause Clause and a valid Termination Without Cause Clause are mixed together, does the void Termination With Cause Clause render the valid Termination Without Cause Clause unenforceable.

Recent Case Sheds Light on Issue of Void With Cause Clause

In Waksdale v. Swegon North America Inc., 2019 ONSC 5705 (CanLII), the Plaintiff signed an Employment Agreement that had a Termination Section that contained both a Termination Without Cause Clause and a Termination With Cause Clause. However, it is important to note that the Termination Without Cause Clause and the Termination With Cause Clause were in two distinct paragraphs separated from each other in the Termination Section. They were not mixed together in the same paragraph.

The Plaintiff was terminated without cause and commenced an action for wrongful dismissal, arguing that the Termination Without Cause Clause was rendered void and that he was thus entitled to common law reasonable notice, not the amount of notice contemplated in the Termination Without Cause Clause.

At trial, the parties agreed that the Without Cause Clause was certainly void and unenforceable because it breached the Employment Standards Act, 2000, SO 2000 c 41 (“ESA”). However, the Without Cause Clause, on its face, standing alone, was fine.  

Nevertheless, the Plaintiff argued that the unenforceability of the Termination for Cause Clause impacted on the Employment Agreement beyond that one clause – that this defective clause rendered the entire Employment Agreement – or, at the very least, both termination clauses in the Employment Agreement void and unenforceable.

On the contrary, the Defendant argued that since the Plaintiff was terminated without cause, the Termination With Cause Clause was irrelevant to the dispute and therefore played no part in defining the parties’ respective rights and obligations vis-à-vis this termination.

The Defendant went on to stress that the Without Cause Clause was a stand-alone clause in its own paragraph, and is enforceable without any kind of reference to the Termination With Cause Clause. There was no mixing of the two clauses in any way.

In the result, the court found in favour of the Defendant, holding that although employment agreements are generally to be interpreted in the interests of employees, “[that] principle cannot be stretched to the point of finding ambiguity where none exists”. The Without Cause Clause was unambiguous, enforceable, and stood apart from the Termination With Cause Clause. Indeed, the Termination With Cause Clause itself specifically stated that it applied only “[i]f the Company terminates your employment pursuant to this Section…”. The Court further opined:

[17]           There is no need to sever anything here as by its own terms the Termination for Cause provision does not apply to the present case. It is only the Termination of Employment with Notice clause which applies here, and there are no grounds on which to challenge the enforceability of that clause. It does not contravene the ESA, and is therefore valid and enforceable as written and agreed to.

This was a novel case; it was the first time an employee argued that where a perfectly good Without Cause Clause is located in a separate clause from a void and unenforceable With Cause Clause, the offending With Cause Clause renders both Termination provisions in the Employment Agreement void and unenforceable. However, that argument failed, and thus, this case becomes the rule that where a void With Cause Clause is separate and apart from a perfectly good Without Cause Clause, the void With Cause Clause does not make the perfectly good Without Cause Clause unenforceable. The key seems to be that:

• The two clauses must be separate and apart from each other; and
• the two clauses operate without reference to each other; and
• the Without Cause Clause says it applies only in the event of a without cause termination.