Court of Appeal applies Waksdale federally
Exclusive to Canadian HR Reporter from Rudner Law.
For HR professionals and employers, drafting employment agreements that withstand scrutiny is an ongoing challenge. While Ontario employers are well accustomed to the unique challenges that arise from the dual standard of just cause at common law and “wilful misconduct” as defined by the Employment Standards Act, 2000 (ESA), those operating in federally regulated industries or outside Ontario often assume greater latitude when drafting for cause provisions.
However, the Ontario Court of Appeal's decision in Ghazvini v. Canadian Imperial Bank of Commerce dismantles that assumption.
Background on just cause case
In brief, three employees were dismissed without cause; since they worked for a bank, the applicable employment standards statute was the Canada Labour Code (CLC).
The employees sued for wrongful dismissal; CIBC attempted to rely on the termination provision in their employment agreements, while the employees argued that it was not enforceable because the for cause provision breached the CLC.
The impugned clause read as follows:
“By CIBC for Cause – CIBC may terminate your employment at any time without advance notice, or pay in lieu of notice, for Cause. Cause includes, but is not limited to, dishonesty, fraud, breach of trust, failure to perform your duties in a satisfactory manner, a breach of the Code, failure to obtain or maintain any required TLAs, failure to complete the preemployment screening process to the satisfaction of CIBC, providing false, misleading or inaccurate information during the hiring process, a breach of any other term or condition of your employment, and any act or omission recognized as Cause under applicable law. If your employment is terminated for Cause, you will have no entitlement to any notice of termination, payment in lieu of notice of termination, severance or any other damages whatsoever.”
Unfortunately for CIBC, the court applied Waksdale, finding that because the for cause provision defined cause far more broadly than the common law, it breached the CLC by lowering the requisite statutory standard to dismiss without notice. Consequently, the entire termination clause was struck, and the employees were entitled to reasonable notice at common law.
Court of Appeal weighs in
CIBC appealed the decision, arguing that the termination clause was enforceable, and that Waksdale does not apply to provincially regulated employment matters.
The Court of Appeal disagreed, holding that there is "no principled reason why the same analytic approach [Waksdale] should not apply to employment agreements governed by the CLC". The court affirmed that under the CLC, "just cause" entails misconduct going to the very root of the employment relationship. Defining cause to capture lesser misconduct, such as "dishonesty" without further context, unlawfully attempts to contract out of the CLC, as dishonesty alone does not automatically constitute just cause.
Since the for cause provision breached the CLC, the without cause provision was rightly struck.
Missing saving language: The Baker distinction
Further, the Court of Appeal distinguished CIBC's clause from the one recently upheld in Baker v. Van Dolder’s Home Team Inc. In Baker, the Court of Appeal confirmed that an overly inclusive or potentially offside cause provision can be saved if the contract contains explicit saving language guaranteeing that, even if terminated for cause, the employee will still receive any minimum statutory entitlements prescribed by legislation.
For example, the clause at issue in Baker providing the following:
“Termination with cause: we may terminate your employment at any time for just cause, without prior notice or compensation of any kind, except any minimum compensation or entitlements prescribed by the Employment Standards Act. Just cause includes the following conduct:”
CIBC’s contract contained no such saving language. Instead, it expressly stated that a for cause dismissal left the employee with "no entitlement to any notice of termination, payment in lieu of notice of termination, severance or any other damages whatsoever". Without explicit language preserving statutory entitlements, the overbroad cause definition rendered the entire termination clause void.
The HR takeaway
Ghazvini delivers critical takeaways for HR professionals and employers:
- Waksdale applies federally: The decision confirms that Waksdale is not an isolated Ontario decision. Its analytical framework applies to federal employment matters and suggests that our courts will apply similar scrutiny in other jurisdictions where a cause provision purports to disentitle employees from statutory protections.
- Avoid defining “cause” and extraneous language: Employers operating in federal or non-Ontario jurisdictions can should not rely on laundry lists of “cause" triggers in their agreements. Any extraneous language should be avoided. We highlight that termination clauses must comply with the applicable employment standards legislation in any jurisdiction.
- Saving language is in: As the court affirmed, incorporating clear Baker-style saving language (confirming that statutory minimums will always be provided) is a valuable safeguard but should not replace good drafting.
To avoid costly litigation and unexpected liability upon dismissal, employers should proactively work with experienced HR counsel to review their employment agreements, eliminate offside cause definitions, and ensure proper statutory saving language is in place.
David Gelles is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
