The “Just Cause” Trap In Employment Terminations

The “with cause” section in an employment agreement is a potential trap that can destroy entire termination provisions. There has been increasing judicial scrutiny of termination clauses, and several recent Ontario decisions have voided entire termination sections that defined “just cause” for termination without notice too broadly.

Just Cause vs. Wilful Misconduct

There is a gap between the common law concept of “just cause” and the statutory standard of “wilful misconduct” under the Employment Standards Act, 2000 (“ESA”). Under Ontario Regulation 288/01, an employee is only exempt from the minimum notice or termination pay entitlements if they are guilty of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” Traditionally, “just cause” includes a range of employee failings, from poor performance to persistent lateness. Wilful misconduct is a much higher bar. 

Wilful misconduct may include recklessness. According to the ESA Policy and Interpretation Manual: “an employee who is reckless in their conduct may be guilty of wilful misconduct if that employee knew or ought to have known that their conduct would cause the result that came to pass.” This was the case in United Rentals of Canada Inc. v Peter Ferguson, and Director of Employment Standards, 2026 CanLII 8489 (ON LRB), which involved termination due to an employee’s inappropriate behaviour while intoxicated at a work-related event. 

As long as there has been no wilful misconduct, an employee terminated for just cause is still entitled to the minimum notice or pay in lieu of notice in accordance with the ESA, which provides for notice of about 1 week of pay for every year worked, up to a maximum of 8 weeks. If there has been wilful misconduct, an employee can be terminated without providing notice or pay in lieu of notice under the ESA.

If an employment contract suggests that an employer can terminate an employee for just cause without providing the ESA minimum notice or termination pay in circumstances that do not meet the wilful misconduct standard, the clause is considered an attempt to contract out of the ESA standards and therefore unenforceable.

Where Termination for Cause is Unenforceable

Recent decisions have specifically addressed clauses that list broad infractions as grounds for termination without notice. A clause stating that the employer may terminate for cause for any breach of company policy leaves employers open to the risk that the termination provisions will be unenforceable. Since not all policy breaches constitute “wilful misconduct”, courts view this as an attempt to bypass the ESA.

For example, in Liggett v. Veeva Software Systems, Inc. and Veeva Systems Inc., 2025 ONSC 7010, the Ontario Superior Court considered an employment contract that included just cause to terminate without notice when “the employee fails to respond to performance coaching or progressive discipline”. The court found the term violated the ESA, rendering the entire provision unenforceable, because the wording was broader than the ESA minimum standards and did not meet the threshold for wilful misconduct.

Similarly, the court found the termination provisions unenforceable in Chan v NYZ Capital Corp, 2025 ONSC 4561, where the contract simply provided the right to terminate without notice or severance pay “at any time for cause” without defining “cause”. The court found the clause did not meet the more onerous test for wilful misconduct and improperly purported to give the employer authority to terminate without notice or severance pay in circumstances that are broader than allowed under the ESA.

A recent Court of Appeal decision suggests a move to a more common-sense approach to interpreting termination provisions. In Baker v Van Dolder’s Home Team Inc., 2026 ONCA 568, the Court of Appeal overturned the lower court’s finding that the termination for cause provision was unenforceable. The lower court judge had held that the provision, in which “just cause” included poor performance and “any conduct which would constitute just cause under the common law or statute”, was unenforceable because it fell short of the wilful misconduct standard and did not explain the difference between the contract and the standard under the ESA. The Court of Appeal rejected the argument that the provision would confuse a “regular employee” and found no basis to conclude an employee would assume they had no entitlements under the ESA. In this case, the contract explicitly referred to the ESA minimum entitlements.

The Waksdale Principle 

Courts continue to apply the principle from Waksdale v. Swegon North America Inc., 2020 ONCA 391, which dictates that a termination clause must be read as a whole. 

If any part of the termination section violates the ESA, such as the “with cause” portion, the entire termination provision is rendered unenforceable, even if the employer does not ultimately rely on that part of the provision. This leaves the employer liable for the potentially much higher common law reasonable notice period.

The Inequality of Bargaining Power

Judges are increasingly emphasizing the vulnerability of employees and the inequality of bargaining power between employers and employees when interpreting these contracts. As the court pointed out in Liggett, employees rarely negotiate the terms of their employment agreements. Employees are often presented with the contract for acceptance without the ability to alter any terms, let alone fully understand the impact of all the clauses.

Courts refuse to sever or read down clauses to make them legal; they simply strike the whole section, encouraging employers to draft agreements that comply with the ESA and that clearly state employees’ entitlements from the outset.

Key Takeaways 

Employers should review their employment contracts to ensure that agreements survive the strict test currently being applied by Ontario courts.

Risks factors include:

• Overly broad triggers for termination, e.g. language stating that an employee can be terminated for cause for any breach of policy or for poor performance.
• Agreements that are silent on the ESA.
• Using old and outdated templates that do not reflect the increased scrutiny of termination clauses.