Recent Ontario court decisions continue to reinforce a strict approach to termination provisions in employment contracts. We will discuss two of these cases, along with a third case where a termination provision was upheld.
First, the Court of Appeal for Ontario has released its much anticipated decision in Dufault v. Ignace (Township), 2024 ONCA 915, which concerns the enforceability of termination provisions in employment agreements. This decision reinforces and builds upon the principles established in Waksdale v. Swegon North America Inc., 2020 ONCA 391, with significant implications for employers.
More recently, the Superior Court has adopted the lower court holding in Dufault and set aside another termination provision in Baker v. Van Dolder's Home Team Inc., 2025 ONSC 952.
While courts continue to find problems with termination provisions in employment contracts, there is a recent decision in Bertsch v. Datastealth Inc., 2024 ONSC 5593 where a termination provision was upheld.
The Dufault appellate decision
In Dufault, the issue was the enforceability of both the "with cause" and "without cause" termination provisions in a fixed-term employment contract. The motion judge concluded that both provisions were unenforceable.
At the Court of Appeal, the key issue was whether the "with cause" termination provision was enforceable.
The following key principles emerge from the Court of Appeal's analysis:
1. Cause vs. wilful misconduct: The Court of Appeal concluded that the "with cause" termination provision was contrary to the Employment Standards Act (ESA) because it defined "cause" more broadly than the narrow exception in the ESA. The ESA allows for termination without notice or pay in lieu of notice for "wilful misconduct," which is narrower than cause. Thus, the distinction between cause and wilful misconduct remains crucial.
2. Termination provisions must be read as a whole: Following Waksdale, the Court of Appeal confirmed that deficiencies in one part of a termination provision render all termination provisions invalid. In other words, it was irrelevant whether the "without cause" termination provision complied with the ESA because the "with cause" termination provision did not
3. Waksdale remains good law: The three-judge panel in Dufault expressly acknowledged its inability to revisit the Waksdale principles, noting that such reconsideration would require a fivejudge panel. The appellant had requested a five-judge panel to reconsider Waksdale, but this request was denied such that there was no opportunity given by the Court of Appeal to revisit the Waksdale principles, despite request and interest of the appellant to do so.
Legal implications of Dufault
The appellate decision in Dufault has several significant legal implications:
1. Fixed-term contracts
In Dufault, the employment contract was for a fixed term. The employee was therefore entitled to remuneration for the remainder of the fixed term, which resulted in damages of $157,071.57. This does not apply to contracts without a fixed period over which the employment is agreed to in advance.
2. Statutory compliance
The Court of Appeal continues to maintain its strict approach to ESA compliance, particularly regarding:
- The distinction between common law "cause" and ESA "wilful misconduct";
- The requirement for termination provisions to meet or exceed ESA minimum standards; and
- The interconnected nature of termination provisions within employment agreements.
3. Judicial interpretation
The Court of Appeal in Dufault declined to address the enforceability of specific contract language such as "at any time" and "at its sole discretion," leaving these questions open for future consideration.
The Baker decision
In Baker, the issue was whether the "with cause" and "without cause" termination provisions were enforceable in a summary judgment motion before the Superior Court of Justice.
The employee argued, based on the lower court decision in Dufault, that the "without cause" termination provision was unenforceable because it allowed the employer to terminate employment "at any time."
The motions judge in Baker applied the lower court decision in Dufault and concluded that the "without cause" termination provision was unenforceable because of the "at any time" language.
With the Court of Appeal not addressing this aspect of the lower court decision in Dufault, it remains open for courts to continue to follow the decision that "at any time" language makes a "without cause" termination provision unenforceable.
Notable concurrent development
In Bertsch v. Datastealth Inc., 2024 ONSC 5593, on a motion to interpret contractual terms and strike the claim for failure to disclose a tenable cause of action, the Superior Court of Justice upheld a termination clause limiting entitlements to ESA minimums. This decision demonstrates that properly drafted provisions remain enforceable, particularly when they:
- Clearly meet statutory minimums;
- Avoid ambiguous or overreaching language; and
- Maintain consistency with ESA requirements throughout.
Legal considerations for employment agreements
Essential elements for enforceability
1. Termination "with cause" provisions must:
- Align precisely with ESA "willful misconduct" standards;
- Preserve minimum statutory entitlements; and
- Avoid broader common law definitions of cause.
2. "Without cause" provisions must:
- Guarantee ESA minimum entitlements;
- Use precise statutory language; and
- Account for all forms of compensation.
Conclusion
These recent decisions reinforce the Ontario judiciary's commitment to protecting minimum employment standards through strict interpretation of termination provisions. The Court of Appeal's decision in Dufault maintains the analytical framework established in Waksdale while providing additional guidance on the application of these principles to fixed-term contracts. The recent decision in Baker further underscores the strict approach that courts will take to ensure compliance with the ESA minimums.
That being said, the decision in Bertsch serves as a reminder to employers and employees alike that it is possible to draft termination provisions that comply with the ESA and will be upheld by the courts.
As a result of these decisions, employers may wish to review their employment agreements with particular attention to any definitions of cause and how they align with the ESA standard of wilful misconduct. The termination provisions at issue in Dufault, Baker and Bertsch can serve as important precedents.
Originally published by Law360 Canada, 25 August 2025.
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