Ontario Court Of Appeal Upholds Termination Clauses

In a win for Canadian employers, the Ontario Court of Appeal (“ONCA”) has reinforced common sense rules of contractual interpretation and, in two cases heard together, found that the termination clauses were enforceable to limit dismissed employees to the minimum requirements of the Ontario Employment Standards Act, 2000 (“ESA”)¹. In the result, neither employee was wrongfully dismissed nor entitled to damages in lieu of common law reasonable notice.

Employment lawyers across the country eagerly awaited this decision because courts had previously come to conflicting decisions on whether termination clauses which permitted termination “at any time” or “for any reason” were contrary to the ESA and therefore unenforceable. For several years, lawyers for dismissed employees have argued that such language renders termination clauses unenforceable across the country in an effort to negotiate higher severance packages for their clients. The ONCA has found that use of these words does not automatically render the clause unenforceable.

Key takeaways for employers:

• Use of the words “at any time” or “for any reason” in a termination clause do not automatically render the clause unenforceable.
• The ONCA reinforced principles of contractual interpretation:
  • Genuine ambiguity only arises where there are two or more reasonable but differing interpretations considered in the context of the entire contract;
  • Courts should not strive to find an ambiguity where none reasonably exists; and
  • Courts should strive to ascertain the objective intentions of the parties in light of the words used in the contract as a whole, and the surrounding circumstances known at the time the contract was executed.

The ONCA accepted that the employers in these cases could not have intended that the termination clause would allow them to contravene statutes without liability. The ONCA noted that the purpose of a termination clause is to limit an employee's common law notice entitlements, so it would not make sense for them to draft an unenforceable termination clause, as that would negate its purpose. This is an important interpretive approach which may assist employers in defending termination clauses in other contexts and provinces.

Further, in an analysis most applicable to Ontario employers, the ONCA found that a “for cause” termination clause which defines cause more broadly than the Ontario ESA's “wilful misconduct” standard can still be enforceable if the clause expressly preserves the employee's minimum ESA entitlements.

This decision brings much-needed clarity to the interpretation of termination provisions in employment contracts, particularly in Ontario where the courts have been reluctant to enforce termination clauses in recent years.

Footnote

1. Baker v. Van Dolder's Home Team Inc., 2026 ONCA 568.