Uncertainty Remains Around Employment Termination Provisions in Ontario

In a recent decision, Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952, the Ontario Superior Court of Justice provided clarity on the enforceability of termination provisions in employment contracts. This case is important for employers and employees alike. It highlights how termination clauses are scrutinized by the courts and underlines the importance of proper drafting.

Termination provisions are subject to frequent dispute. The reason is simple: where a termination clause is unenforceable, the employee is likely entitled to receive more money.

For a termination provision to be enforceable in Ontario, there are two requirements:

1. it must clearly comply in all circumstances with the Employment Standards Act, 2000 (“ESA”); and

2. all other provisions within the contract that address termination entitlements must likewise comply with the ESA. Put differently, if any termination provision is unenforceable, all such clauses are null and void (i.e., one bad apple spoils the bunch).

Guidance from Baker

In Baker, the plaintiff was employed as a salesperson. His employment contract contained termination clauses that purported to limit his dismissal entitlements to the minimum required by the ESA.

Thus, the central issue before the court was whether these provisions were enforceable or whether they failed to comply with the ESA, leaving Baker with a greater common law right to reasonable notice of dismissal (read about the common law here).

The termination provisions in question were as follows:

Termination without cause: we may terminate your employment at any time, without just cause, upon providing you with only the minimum notice, or payment in lieu of notice and, if applicable, severance pay, required by the Employment Standards Act. If any additional payments or entitlements, including but not limited to making contributions to maintain your benefits plan, are prescribed by the minimum standards of the Employment Standards Act at the time of your termination, we will pay same. The provisions of this paragraph will apply in circumstances which would constitute constructive dismissal. [emphasis added]

Termination with cause: we may terminate your employment at any time for just cause, without prior notice or compensation of any kind, except any minimum compensation or entitlements prescribed by the Employment Standards Act. Just cause includes the following conduct:     

a.   Poor performance, after having been notified in writing of the required standard;

b.   Dishonesty relevant to your employment (such as misleading statements, falsifying documents and misrepresenting your qualifications for the position you were hired for);

         c.   Theft, misappropriation or improper use of the company’s property;

         d.   Violent or harassing conduct towards other employees or customers;

e.   Intentional or grossly negligent disclosure of privileged or confidential information about the company;

f.     Any conduct which would constitute just cause under the common law or statute. [emphasis added]

The Court found both provisions to be unlawful and unenforceable. With respect to the “Without Cause” provision, the court identified a fatal drafting error. Specifically, that an employer cannot purport to terminate employment “at any time” as this is impermissible under the ESA (i.e., at the end of an employee’s protected leave or in reprisal for attempting to exercise rights under the ESA). In reaching this conclusion, the court applied stare decisis, following the earlier decision of Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (in which a termination provision allowing for termination at any time was likewise found to be unlawful). You can read more about the Dufault decision here.  

In concluding that the “With Cause” termination provision was unenforceable, the court took issue with the following language within the clause: “we may terminate your employment at any time for just cause, without prior notice or compensation of any kind, except any minimum compensation or entitlements prescribed by the Employment Standards Act.”

The court found this language to create unfairness. It alerted the employee to the possibility they may have a greater entitlement than the contract purports to offer, without explaining what this may be. As a result, the court concluded that the provision failed to account for the reality that:

1. individual employees are unlikely to be familiar with the ESA and its requirements and thus will not understand they have a greater entitlement (thus potentially relieving the employer from statutory compliance and undermining the purpose of the ESA); and

2. employees should clearly understand at the time of contract formation what their entitlements will be if the relationship is ended.

The court summarized its concerns as follows:

The potential unfairness of a termination provision of the sort at issue is that the employer has described in detail the contractual standard of just cause but given no detail or explanation of the ESA wilful misconduct standard, and that it differs from the contractual standard. Given that many employees will not be familiar with the ESA provisions, many employees would assume that they had no entitlement if they breached the contractual standards. [para 19]

Takeaway for Employers

Ontario employers should ensure their termination clauses are both clear and compliant with the ESA. Vague language, or ambiguity, is unlikely to be upheld by the courts.

Baker is thus an important reminder to review employment agreements and work with employment counsel to have in place termination provisions which are clear in what they provide in any given circumstance. Catch-all provisions designed to fix potential illegality should be avoided. Every provision must on its face be clear and comply with the ESA.  

Vey Willetts LLP is an Ottawa-based employment and labour law boutique that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.