The Ontario Court of Appeal addressed the continued uncertainty in the jurisprudence governing termination provisions in employment contracts. In Baker v. Van Dolder’s Home Team Inc., and Li v Wayfair Canada ULC, 2026 ONCA 568, termination clauses previously considered non-compliant were held up as valid in these cases.
Although this is not an Alberta case, it hails from the Ontario Court of Appeal and could have persuasive weight here.
Facts
- Baker was working as a controller and head of finance under an employment contract containing “without cause” and “with cause” termination provisions. The employer, Van Dolder, terminated the employee’s employment without cause and offered enhanced pay in lieu if a release is signed.
- The employee declined the offer and sued for wrongful dismissal, alleging the termination provisions that include “at any time” violate the Employment Standards Act 2000, S.O. 2000, c. 41 (ESA) and are void. Van Dolder paid only the ESA minimum notice pay.
- 2025 ONSC 952, February 11, 2025: the Ontario Superior Court allowed the employee’s claim for common law reasonable notice (severance), finding both termination provisions unenforceable and in violation of the ESA
- Li had a similar situation and similar employment contract, with a clause allowing termination “at any time for any reason”. This clause was upheld as enforceable by the ONSC
- The employer claimed that the motion judge erred in Baker by:
- reading the contract piecemeal and treating “at any time” as ESA-inconsistent, contrary to appellate authority and good faith.
- finding the “with cause” clause ESA-inconsistent and by requiring an explanation of ESA “wilful misconduct”. They submitted Waksdale v. Swegon North America Inc., 2020 ONCA 391 should be overruled
- Baker and Li were previously separate cases, but were considered together by the Ontario Court of Appeal here
Analysis / Conclusion
Acknowledging that termination clauses have become increasingly uncertain and subject to a range of judicial treatment, the Court suggested a more context-sensitive approach.
The Court observed, “virtually identical termination clauses might in one case be found to be inconsistent with the ESA and therefore void, but in another be found to be valid and enforceable.” This uncertainty was evident in the cases at bar: in Baker, the motion judge struck down a provision permitting termination “at any time” as contrary to the ESA, while in Li, the motion judge upheld a provision permitting termination “at any time and for any reason.” Against that backdrop, the Court seized the opportunity to “clarify the relevant legal principles governing the interpretation of termination provisions in employment contracts” and bring greater certainty to this area of the law.
The Court evaluated whether:
- the “without cause” termination provision unenforceable because “at any time” conflicts with ESA termination prohibitions.
- the “with cause” termination provision unenforceable despite preserving ESA minimum entitlements
- Waksdale v. Swegon North America Inc., 2020 ONCA 391 ought to be reconsidered in this appeal.
The Court noted that employment contracts require interpretation attentive to employee vulnerability, while still applying modern contractual interpretation to ascertain objective intention in context. The Court directed that a clause is ambiguous only where competing interpretations are reasonable in the context of the whole agreement.
In the Baker part of the decision, the Court first examined the termination clause “for cause”, finding that the “for cause” definition was broader than the ESA standard for Willful Misconduct. However, it was noted that the legal effect of the clause resulted in an alignment with the ESA, on the basis that Mr. Baker would still be entitled to ESA compensation, unless his conduct had fallen into the narrow definition of Willful Misconduct. Therefore, there was no ambiguity in the clause that would warrant invalidating the provision.
Turning to the “without cause” the court held that the “at any time” wording could not reasonably express an intention to permit termination contrary to statutory prohibitions, given the clause’s express linkage to ESA minimums. The contract’s minimum-standards clause requiring ESA compliance “at all times” confirms that the termination right operates only within ESA limits, including ss. 53 and 74 of the ESA. The Court found that a literal reading that would imply intentional exposure to reinstatement, “make whole” remedies, offences, and penalties would be inconsistent with objective intention and common sense.
The court also found that the “with cause” clause aligned with ESA minimum entitlements because it expressly preserves any ESA “minimum compensation or entitlements,” notwithstanding a broader contractual “just cause” definition. The motion judge’s “potential unfairness” rationale failed because the clause expressly stated ESA minimum entitlements remain payable, and referential incorporation of ESA entitlements was considered valid.
The court determined that Waksdale did not need to be reconsidered in these cases because the termination provisions here were compliant with the ESA. The Court’s direction in this case was as follows:
- The inclusion of the words allowing a termination without cause ” at any time ” or ” at any time and for any reason” does not automatically violate the ESA and thus were permissible.
- Even if the “with just cause ” clause contains a list of offences which do not constitute wilful misconduct under the ESA, as long as it contains the magic words “except any minimum compensation or entitlements prescribed by the Employment Standards Act“, the clause could still be legal. The reasoning on this issue is set out below.
[73] As in Dufault (Ont. C.A.), the definition of “cause” in Mr. Baker’s contract is broader than the ESA standard of Wilful Misconduct. However, unlike the provision in Dufault (Ont. C.A.) and the termination provisions considered in other recent decisions of this court, the With Cause Provision in Mr. Baker’s contract provides that if Mr. Baker’s employment is terminated for “cause”, he will still be entitled to any “minimum compensation or entitlements prescribed by the Employment Standards Act”. The legal effect of this proviso is to bring the With Cause Provision into alignment with the ESA, since even if Mr. Baker’s employment is terminated for cause pursuant to his employment contract, he will still be entitled to notice, benefits continuation, and severance pay unless his conduct falls within the narrower category of Wilful Misconduct. In other words, the inconsistency between the employment contracts and the ESA in Dufault (Ont. C.A.), De Castro, and Rahman does not arise in the case of Mr. Baker’s contract. (emphasis added)
[…]
[79] Here, there is no ambiguity in the wording of the With Cause Provision, which expressly provides that if Mr. Baker is terminated for cause, he will in any event receive his minimum entitlements under the ESA. It is well established that employers may referentially incorporate ESA entitlements in an employment contract and that such provisions are valid […]
My Take
We again have cases that appear to cut against each other relating to the enforceability of termination clauses.
What seems to have prevailed in Baker is a direction by the court in which specific termination clauses are evaluated both in the context of the termination as well as the backdrop of the relevant employment standards legislation.
Rather than a freewheeling foreclosure of employee claims against the validity of termination provisions, it is likely that we will see a more nuanced approach.
For parties with termination provisions that persist that are not compliant with the local employment standards there remains a gap between the statute and the common law that will support reasonable notice arguments.
For employer side counsel there is a renewed direction for the drafting of termination provisions, or updating existing contracts.
I believe Baker and Li will likely seek leave to appeal to the Supreme Court of Canada. The entire employment law bar waits eagerly to see if the SCC will finally tackle this issue with what seems to be an inconsistent body of case law.
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