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The legal landscape in Ontario surrounding the enforceability of termination clauses in employment contracts continues to develop at a rapid pace. Employers are now more aware than ever that one misplaced phrase in a termination clause can expose them to significant financial liability.
Ontario courts have grappled with the enforceability of termination clauses in several recent cases, including Chan v. NYX Capital Corp., Li v. Wayfair Canada ULC, Jones v. Strides Toronto, and Baker v. Van Dolder's Home Team Inc. Other cases, such as Dufault v. Ignace (Township) and Bertsch v. Datastealth Inc., have even come before the Court of Appeal. Nevertheless, the law remains unsettled and uncertain as to when a termination clause will be struck down for failing to comply with the minimum standards set out in the Employment Standards Act, 2000 (the "ESA").
While the prospect for employers has been bleak, recent cases suggest that there may be a light at the end of the tunnel and hope for drafting an enforceable termination clause that complies with the ESA and rebuts the presumption of reasonable notice at common law.
Review of the Law on Termination Clauses in Employment Contracts
It is well-established law that employment contracts are interpreted differently from other commercial contracts.1 With employment contracts, there is an inherent power imbalance between the employer and employee due to the employee's lack of bargaining power and lack of knowledge of their statutory and common law rights.2 As a result, employees are granted additional protections by the courts and employment contracts are interpreted in a way that favours ESA compliance.
With termination clauses, employers often seek to limit an employee's rights upon their termination to the minimum standards set out in the applicable legislation, namely, the ESA or Canada Labour Code. However, if the termination clause provides for a lesser entitlement than the minimum statutory standards, the clause will be unenforceable, and employees will be entitled to a longer notice period at common law.3
The 2020 Court of Appeal decision in Waksdale v. Swegon North America Inc. dealt a significant blow to employers seeking to enforce termination clauses.4 The Court concluded that:
"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."5
The Court also confirmed that non-reliance on the unenforceable clause is not a defence; if any part of the clause is unenforceable, then the entirety of the clause is unenforceable.6
There are two main types of termination provisions: "with cause" termination provisions and "without cause" termination provisions.
A common issue for "with cause" termination provisions is the failure to distinguish between "just cause" and "wilful misconduct." Just cause at common law can be any conduct that is serious enough to damage the employee-employer relationship, including negligence or poor performance. In contrast, wilful misconduct is much more difficult for employers to establish and requires intentional and deliberate acts.
If an employee is found to be "guilty of wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned by the employer," then they lose their ESA entitlements.7 However, if an employee is terminated for just cause, then they are not entitled to a reasonable notice period at common law but retain their ESA entitlements. As such, a termination clause which provides an employee with no compensation upon termination for "just cause" but not "wilful misconduct" is unenforceable for violating the ESA. If employers seek to exclude an employee's ESA entitlements on termination, they must refer to the statutory test of "wilful misconduct."
However, it is the "without cause" termination provisions which have attracted the most attention in the last year.
"Without Cause" Termination Provisions
"At Any Time" Language Under Strict Scrutiny
As we have discussed in previous blogs on the decisions of Dufault v. Ignace (Township) and Baker v. Van Dolder's Home Team Inc., the most contentious enforceability issue that courts are currently grappling with is "without cause" termination provisions, which purport to grant employers "sole discretion" to terminate employees "at any time."
Decisions such as Dufault v. The Corporation of the Township of Ignace8 and Baker v. Van Dolder's Home Team Inc.9 have found that termination clauses containing language permitting employers to terminate employees at any time in their sole discretion are unenforceable. In Dufault, the Court confirmed that employers could not terminate employees at any time for any reason; specifically, the ESA prohibits termination at the end of an employee's protected leave (s. 53) or in reprisal for exercising their rights under the ESA (s. 74).10 Baker followed the reasoning set out in Dufault and concluded that "an incorrect statement as to the ESA is not saved by general language stating that the employer will comply with the ESA."11
An Evolving Contextual Approach to "At Any Time"
After Dufault and Baker, courts began to take a more contextual approach in their contractual interpretation.
In Li v. Wayfair Canada ULC.,12 the Court upheld a termination clause with "at any time" and "for any reason" language. The Court took a holistic approach to the termination clause and found that repeated references to ESA compliance and the inclusion of specific ESA entitlements, such as termination pay, severance pay, and benefits, saved the clause and distinguished the case from Dufault. The Court also found that the "for cause" termination provision was enforceable as it tied the definition of "cause" to the ESA "wilful misconduct" standard.13
Similarly, in Jones v. Strides Toronto,14 the Court analyzed a "without cause" termination provision which permitted the employer to terminate employment "at any time." As the clause did not grant the employer "sole discretion" to terminate employment, it was distinguished from Dufault and not deemed unenforceable on those grounds.15 However, the clause was ultimately deemed unenforceable due to issues with the "for cause" termination provision.
There has been some controversy surrounding the legal reasoning in the decisions of Li and Jones, as well as suggestions that the decisions are inconsistent with Dufault and Baker. Li is also currently under appeal. Subsequent cases, such as Chan v. NYX Capital Corp.16, have also applied the reasoning in Baker and Dufault without references to Li and Jones. The Court in Chan specifically objected to the termination clauses permitting the employer to terminate an employee "at any time and for any reason at its discretion" during the employee's three-month probationary period and "at any time without cause."17 These inconsistencies are unlikely to be resolved without intervention from the Court of Appeal.
The Importance of Precise Contract Drafting
The most important takeaway for employers is that great care must be taken when drafting termination clauses, particularly in ensuring that they are unambiguous and comply with the ESA.
In Bertsch v. Datastealth, the Court of Appeal confirmed that it was possible for Ontario employers to draft an enforceable termination clause which precluded employees from claiming reasonable notice at common law. The Court found that the language in the termination clause was precise, unambiguous, and specifically provided for an employee's minimum payments and entitlements under the ESA.18
Termination clauses in employment contracts should be carefully drafted to explicitly reference minimum ESA entitlements and to expressly displace the presumption of reasonable notice at common law. At the same time, termination clauses should not be ambiguous or open to multiple interpretations that may deny an employee their minimum statutory entitlements upon termination. "Without cause" termination clauses should avoid overly broad terms like "at any time" and "sole discretion," and "with cause" termination clauses should differentiate between the standards of "just cause" at common law and "wilful misconduct" under the ESA.
Footnotes
1. Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 at para 26.
2. Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC).
3. Ibid.
4. 2020 ONCA 391.
5. Ibid at para 10.
6. Ibid at paras 11-12.
7. O. Reg. 288/01: Termination and Severance of Employment, ss 2(1)(3) and 9(1)(6).
8. 2024 ONSC 1029 [Dufault, ONSC], aff'd Dufault v. Ignace (Township), 2024 ONCA 915.
9. 2025 ONSC 952 [Baker].
10. Dufault, ONSC, supra at para 46.
11. Baker, supra at para 10.
12. 2025 ONSC 2959.
13. Ibid. at paras 13-21.
14. 2025 ONSC 2482.
15. Ibid at paras. 21-23.
16. 2025 ONSC 4561.
17. Ibid at paras 11-12.
18. 2025 ONCA 379 at paras 9-11.
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.
