After a series of conflicting decisions, the Court of Appeal for Ontario has clarified the enforceability of termination clauses in Ontario employment agreements through its recent decision in the dual appeals in Baker v Van Dolder’s Home Team Inc. and Li v Wayfair Canada ULC.
The Court confirmed that contractual language permitting an employer to terminate employment “at any time” and “for any reason”—including similar phrases such as “at the employer’s sole discretion”—does not, by itself, breach Ontario’s Employment Standards Act, 2000 (ESA) or make the termination clause unenforceable. This is welcome news for provincially regulated, non-union employers in Ontario.
The Court of Appeal also confirmed that a “with cause” termination provision that permits an employer to terminate for “just cause” without notice or compensation in lieu “except as required by the ESA” will be enforceable on its face.
Although the Court of Appeal declined to revisit Waksdale v. Swegon North America Inc., its decision in Baker and Li confirms that courts should interpret employment agreements using a practical, common-sense approach. It also meaningfully narrows the use of Waksdale to invalidate termination clauses.
How We Got Here: Dufault v the Corporation of the Township of Ignace
In February 2024, the Ontario Superior Court released its decision in Dufault v The Corporation of the Township of Ignace. The court found that the “without cause” termination clause in the plaintiff’s employment agreement was unenforceable because it purported to give the employer “sole discretion” to terminate employment “at any time”, which the court held was inconsistent with the ESA—specifically, the prohibition on terminating an employee on the conclusion of a statutory leave (s. 53) and the prohibition on reprisal terminations (s. 74).
The court also found the termination “with cause” clause unenforceable because it permitted the employer to terminate without notice or pay in lieu of notice for “cause”, which was defined more broadly than the narrow standard under the ESA of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer”.
On appeal, the Court of Appeal upheld the finding that the termination clauses were unenforceable, but decided the appeal solely on the deficient “with cause” clause. The Court declined to decide whether the “without cause” provision—with its “at any time” and “sole discretion” language was inconsistent with the ESA. That unresolved issue set the stage for the conflicting trial decisions in Baker and Li.
The Impugned Termination Provisions
In Baker, the employment agreement had a “without cause” termination clause permitting the employer to terminate employment “at any time” upon providing only the statutory minimum entitlements required by the ESA. The agreement also had a “with cause” clause permitting termination without prior notice or compensation of any kind “at any time for just cause” except for the minimum statutory entitlements prescribed by the ESA. Notably, the “with cause” clause defined “cause” to include six categories of misconduct that may be a lower threshold than the ESA’s wilful misconduct standard. The agreement also included a separate “Minimum Standards” clause expressly committing the employer to comply with the ESA “at all times.”
In Li, the employment agreement had a “without cause” termination clause permitting the employer to terminate employment “at any time and for any reason” by providing “only the minimum statutory amount of written notice required by the ESA” and “all other outstanding entitlements, if any, owing under the ESA.” The provision concluded with confirmation that: “In no event will you receive less than your statutory minimum entitlements under the ESA.” The “with cause” clause defined “Cause” by reference to the ESA standard—as “any wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned by the Company...”.
The trial decisions in Baker and Li reached different—and contradictory—results:
- In Baker, the motion judge found both provisions unenforceable, holding that the “at any time” language was inconsistent with the ESA (relying on Dufault) and that the with cause clause failed to adequately explain the difference between contractual “just cause” and the ESA’s “wilful misconduct” standard.
- In Li, the motion judge reached the opposite conclusion, finding the termination clauses enforceable because the agreement, read as a whole, “clearly and repeatedly” indicated an intention to comply with the ESA and the definition of “Cause” was tied directly to the statutory standard.
The Court of Appeal Sets the Record Straight
The Court of Appeal reaffirmed the established approach to interpreting employment agreements. Although employment agreements must be interpreted differently from ordinary commercial contracts to protect vulnerable employees, the Court emphasized that the exercise is still one of contractual interpretation. Courts must determine the parties’ objective intention based on the words used, the surrounding circumstances and the contract as a whole, rather than focusing on isolated words.
The “Without Cause” Provisions
Applying that approach, the Court of Appeal held that the phrases “at any time” and “at any time and for any reason,” when read in context, did not conflict with the ESA. Neither party could reasonably have intended that language to permit terminations prohibited by the ESA. That interpretation would defeat the purpose of the clause by making it unenforceable and exposing the employer to greater consequences, including reinstatement orders and possible prosecution.
The Court found that these words simply confirm the parties’ intention that a without-cause termination will be legally effective whenever it occurs, subject to any contrary contractual or statutory limits. That conclusion is consistent with Wallace v. United Grain Growers Ltd., which recognizes that an employer may terminate employment “at any time” subject to express contractual or statutory limits.
The Court reached the same conclusion on the phrase “for any reason.” Read in context, that language meant only that the employer did not have to provide a reason for a without-cause termination. It did not override statutory protections, particularly where the agreement repeatedly confirmed ESA compliance.
The “With Cause” Provisions
The Court of Appeal also reversed the trial judge’s finding in Baker that the “with cause” provision was unenforceable. Unlike the clause in Dufault, which denied notice and compensation for “cause,” the Baker clause expressly preserved “any minimum compensation or entitlements prescribed by the Employment Standards Act.” The Court held that this wording brought the clause into compliance with the ESA because an employee terminated for contractual “just cause” falling short of the ESA’s wilful misconduct standard would still receive ESA minimum entitlements.
The Court found that the motion judge in Baker erred by requiring the contract to explain the differences among contractual just cause, common law just cause and the ESA’s wilful misconduct standard. Employers may instead incorporate ESA entitlements by reference.
The Court of Appeal declined Van Dolder’s request to reconsider Waksdale, which held that if one termination provision in an employment contract violates the ESA, all termination provisions are invalid. Because the Court found both contracts complied with the ESA, the issue was moot.
The appeal in Baker was allowed and the plaintiff’s wrongful dismissal action was dismissed; the appeal in Li was dismissed, confirming the trial judge’s finding that the termination clauses were enforceable.
Key Takeaways
The Baker and Li appeals are welcome news for Ontario employers and their counsel, who have had to revisit termination clauses since Waksdale (and then Dufault.)
Termination clauses will continue to face scrutiny from courts and employees’ counsel. But this decision confirms that the practical, common-sense approach—focused on the parties’ objective intention—should prevail. Courts should be less likely to strain to find ambiguity where none reasonably exists on the assumption that doing so will benefit employees.
We now have settled law in Ontario confirming:
- Phrases including, “at any time”, “at any time and for any reason”, “at its sole discretion” and analogues in without cause termination clauses are not, on their own, inconsistent with the ESA. Courts will read these phrases in context, rather than treating them as standalone grants of unlimited authority.
- A “with cause” clause that defines “cause” more broadly than the ESA’s “wilful misconduct” standard will not necessarily be unenforceable provided the provision expressly preserves the employee’s entitlement to statutory minimums under the ESA.
- A contractual clause is not ambiguous merely because it is possible to identify a hypothetical interpretation that could be inconsistent with the ESA. Courts should not strain to find ambiguity in termination provisions where none reasonably exists.
If you have questions about the enforceability of termination clauses in your template employment agreements, or about how this decision may affect wrongful dismissal claims by former employees, please contact the authors of this post or the Bennett Jones Employment Services group.
