A Less Rigid Approach: ONCA on Termination Clauses

Termination clauses are tricky business for Ontario employers. The Employment Standards Act, 2000 (ESA) sets out minimum employment entitlements, including notice periods or pay-in-lieu.^[1] This is where the general statutory guideline of one week per year of service, up to eight weeks, can be found.^[2] Nevertheless, Ontario courts will strike down termination clauses that limit the employee’s entitlements to these statutory floors as unenforceable if they use ambiguous or unfavourable wording. In Wood v Fred Deeley Imports Ltd, the Court of Appeal held that contracting out of common law reasonable notice requires “clear and unambiguous language.”^[3] With an unenforceable termination provision, an employer may find themselves facing significant liability for their employee’s common law notice entitlements.

The enforceability of termination clauses is a key issue in employment law disputes. It is no surprise that courts have had to provide ample guidance in drawing the line between what language is enforceable and what is not.

In 2023, Mr. Frederick Baker’s employment was terminated at Van Dolder's Home Team Inc. on a without cause basis.^[4] The without cause provision in his employment agreement read 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.^[5]

The motions judge, relying on Dufault v The Corporation of the Township of Ignace (Dufault), found the provision unenforceable due to the wording “at any time”.^[6]  The ESA does not permit termination “at any time”, and “[a]n incorrect statement as to the ESA is not saved by general language stating that the employer will comply with the ESA.”^[7]

Also in 2023, Mr. Li was terminated from his position at Wayfair Canada ULC.^[8] The termination provision in his employment agreement included the phrases “at any time for Cause” and “in the absence of Cause, at any time and for any reason”, with “Cause” defined by reference to the wilful misconduct standard in the ESA.^[9] Mr. Li similarly tried to rely on Dufault, but the court held that the wording of his contested provision was distinguishable from that of Dufault and even Baker.^[10] Unlike in the latter two, it clearly and comprehensively promised the employee their minimum statutory entitlements and complied with the ESA’s standard of cause.^[11]

In August 2026, the Ontario Court of Appeal heard these appeals together in Baker v Van Dolder's Home Team Inc.^[12] Surprisingly, the Court overturned the motion judge’s decision in Baker and reaffirmed the decision in Li.^[13] It held that, in context, neither provision could be read to be contrary to the ESA.^[14]

Oftentimes, courts will interpret termination provisions to the benefit of the employee, recognising their lack of bargaining power and vulnerable position upon termination.^[15] In this case, however, the Court acknowledged the “harsh outcome” for the original plaintiffs, having both lost out on their common law entitlements.^[16] Monahan JA determined that “the ESA itself contemplates that the presumption of reasonable notice is a mere common law principle that can be excluded by express contractual terms to the contrary.”^[17] In somewhat of a departure from previously understood principles in termination provision interpretation, this joint appeal was decided on the objective intention of the parties, “rather than straining to find ambiguity where none exists, on the assumption that such an approach will somehow benefit employees.”^[18]

The Court of Appeal has provided greater clarity on the interpretation of termination provisions by concluding that contractual language is to be assessed in context. While this approach may better align with ordinary principles of contractual interpretation, it raises questions about whether employees’ unequal bargaining power will receive sufficient recognition in future cases. Going forward, employers may take some comfort in this decision but should still be prudent in using unambiguous language in their employment agreements to avoid liability or expensive litigation.

Written by Sihan Su

Edited by Sam Hayden

^[1] Employment Standards Act, 2000, SO 2000, c 41.

^[2] Ibid at s 57.

^[3] Wood v Fred Deeley Imports Ltd, 2017 ONCA 158 at para 40.

^[4] Baker v Van Dolder's Home Team Inc, 2025 ONSC 952 at para 4.

^[5] Ibid at para 3.

^[6] Ibid at para 10.

^[7] Ibid.

^[8] Li v Wayfair Canada ULC, 2025 ONSC 2959 at para 2.

^[9] Ibid at paras 9–10, 12.

^[10] Ibid at paras 19–20.

^[11] Ibid at paras 16–18.

^[12] Baker v Van Dolder’s Home Team Inc, 2026 ONCA 568 [Baker CA].

^[13] Ibid at para 5.

^[14] Ibid at paras 33–34.

^[15] Wallace v United Grain Growers Ltd, 1997 CanLII 332 (SCC) at paras 92, 95.

^[16] Ibid at para 84.

^[17] Baker CA, supra note 12 at para 84.

^[18] Ibid.