Canada: Court Of Appeal Brings Clarity To Termination Clauses

The Ontario Court of Appeal has just released a significant decision regarding the interpretation of termination clauses in employment contracts. The decision in Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 ("Wood") reaffirms that courts in Ontario will take a strict approach to interpreting these clauses and  even potential inconsistencies with the Employment Standards Act (the "ESA") will be sufficient to invalidate a clause.  This is particularly important given that several recent Ontario cases had given hope to employers that a more lenient approach was being applied.  With Wood, any suggestion of leniency seems to have been quashed.

The Facts

Julia Wood had worked for Fred Deeley Imports Ltd. ("Deeley") for just over eight years at the time of her termination. The termination clause in her employment agreement read as follows:

The Company is entitled to terminate your employment at any time without cause by providing you with 2 weeks' notice of termination or pay in lieu thereof for each completed or partial year of employment with the Company. If the Company terminates your employment without cause, the Company shall not be obliged to make any payments to you other than those provided for in this paragraph .... The payments and notice provided for in this paragraph are inclusive of your entitlements to notice, pay in lieu of notice and severance pay pursuant to the Employment Standards Act, 2000.

On termination, Deeley provided Wood with 13 weeks' working notice, followed by a lump sum equal to 8 weeks' pay. Deeley also continued Wood's group benefits for 13 weeks.  This satisfied, and indeed was greater than, Wood's entitlements under the ESA, and was consistent with her contractual entitlements. Wood nonetheless sued Deeley for wrongful dismissal, alleging that the termination clause was unenforceable for being contrary to the ESA.

Wood argued that the clause excluded Deeley's statutory obligation to contribute to her benefit plans during the notice period and did not clearly require Deeley to pay severance pay upon termination.

The Superior Court found that the clause in question was enforceable and that Wood had received her ESA and contractual entitlements.  On appeal, the Court of Appeal overturned the Superior Court's decision and held that the termination clause contravened the ESA and was unenforceable.

The Court of Appeal's Decision

First, the Court found the termination clause excluded Deeley's obligation to contribute to Wood's benefit plan during the ESA notice period. The Court noted:

  • The word "pay" in the termination clause was not broad enough to include both salary and benefits.
  • Deeley's contributions to Wood's benefit plans through the entirety of the ESA notice period had no bearing on whether the termination clause itself contravened the ESA. The wording of the clause alone must be looked at to decide whether it contravenes or complies with the ESA.

Second, the Court noted that the clause did not satisfy Deeley's statutory obligation to pay severance pay. "Notice of termination", or "pay in lieu thereof", and "severance pay" are separate obligations under the Ontario ESA.  The clause in question had combined these separate obligations, and could be interpreted in a way that allowed Deeley to avoid paying severance pay.

The Court noted that although the clause in question had several possible interpretations, one of which was compliant with the ESA, and that Deeley had complied with the ESA upon Wood's termination, this did not change the fact that the clause, as drafted, was unenforceable.  Deeley's actions subsequent to termination were not capable of remedying the defective termination clause.  Put another way, the fact that the clause could be interpreted and applied in a way that was not compliant with the ESA, was sufficient to invalidate the clause.

As a result of the invalid termination clause, the employment contract did not rebut the presumption that Wood was entitled to reasonable notice, and she was entitled to a notice period of 39 weeks rather than the 21 weeks she had received.

Lessons for Employers

Several recent decisions in Ontario had given employers hope that the courts were moving away from strictly interpreting termination clauses and were upholding termination clauses that could be applied in a manner that was contrary to the ESA but were applied in a compliant manner.  The most notable of these recent decisions is Oudin v. Centre Francophone de Toronto, 2016 ONCA 514.  In that case the termination clause at issue did not reference benefits or severance pay and was upheld with very brief reasons by the Court of Appeal.  Somewhat surprisingly, the Court in Wood did not mention its earlier decision in Oudin.

Nonetheless, given the in-depth consideration of the issue in Wood, and the very clear direction from the Court, it is likely that courts in Ontario will return to a very strict interpretation of termination clauses in employment contracts.  If a clause can be interpreted in a manner that is not compliant with the ESA then the risk is that it will be unenforceable, regardless of how the employer ultimately applies it.  It is clear from Wood that an employer's conduct post-termination cannot rectify an invalid termination clause.

In light of this decision, employers should ensure that any termination clauses in their employment contracts are fully compliant with the ESA.  This can be challenging where the termination clause offers entitlements that are greater than the minimum statutory entitlements, as was the case in Wood.  In Ontario, this means that the clause must deal with (1) working notice or pay in lieu thereof, (2) severance pay and (3) benefit continuation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Danny Bernstein
Events from this Firm
21 Sep 2017, Workshop, Vancouver, Canada

A fair and thorough workplace investigation paves the way for a successful result at arbitration, trial, or hearing.

10 Oct 2017, Seminar, Vancouver, Canada

Addictions can create unique and complex workplace issues, including accommodation issues, performance and attendance issues, return to work monitoring, and testing requirements.

12 Oct 2017, Seminar, Vancouver, Canada

Addictions can create unique and complex workplace issues, including accommodation issues, performance and attendance issues, return to work monitoring, and testing requirements.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.