Ontario Termination Clauses: Clarity, with Noise
For Canadian employers, few provisions in an employment agreement are more important than the termination clause. If enforceable, a carefully-drafted clause can significantly limit an employer’s termination liability. If the termination clause is unenforceable, the employee may instead be entitled to common-law reasonable notice, potentially turning a relatively modest termination payment into a much larger liability. As we’ve learned from Ontario cases in recent years, it seems that there are numerous arguments which might successfully defeat a termination clause.
The Ontario Court of Appeal has now provided important guidance on this issue in Baker v. Van Dolder’s Home Team Inc., 2026 ONCA 568, which was heard together with Li v. Wayfair Canada ULC. The decisions provide welcome clarification concerning termination provisions, which are common across industries and organizations, that permit an employer to terminate employment “at any time” or “at any time and for any reason.”
How We Got Here: Isn’t A Deal A Deal?
The concern arose from the Ontario Superior Court decision in Baker, which had followed the reasoning in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029. In Dufault, the Court found that language permitting termination “at any time” could potentially authorize a termination in circumstances prohibited by the Ontario Employment Standards Act, 2000 (ESA), such as during a protected leave. The reasoning was that, when read literally, the contract improperly sought to remove statutory protections.
The Baker and Li cases produced conflicting results concerning similar contract language. The Court of Appeal was therefore asked to determine whether words such as “at any time” and “for any reason” automatically render a termination provision unenforceable.
The answer was no.
Context Matters
The Court of Appeal rejected a highly technical approach that examines potentially problematic words in isolation. Instead, an employment agreement must be interpreted as a whole, taking into account the objective intentions of the parties and the surrounding contractual language. As part of that exercise, the focus is on whether or not there was an intent to comply with statutory requirements in the event of termination.
In Baker, the agreement expressly stated that the employer would comply with the ESA. The Court concluded that neither party could reasonably have intended “at any time” to give the employer a right to terminate employment in violation of statutory protections. The phrase therefore did not make the termination provision unenforceable.
Similarly, in Li, the agreement repeatedly confirmed that the employee would receive at least the minimum entitlements required by the ESA. The Court thus found that “at any time and for any reason” did not authorize an unlawful termination. Rather, it described the employer’s contractual right to terminate, subject to applicable statutory protections. Put differently, the clause the Court ready the provision as being confirmation that the employer had a right to terminate the employee with or without cause at any time permitted by law.
Importantly, the Court also upheld the “for cause” provision in Baker, notwithstanding broader contractual language, because the agreement preserved the employee’s ESA minimum entitlements.
Implications for Employers
The decision is good news for employers, but it is not a licence to use broad termination language casually. It also is certainly not the end of contentious disputes about the enforceability of termination provisions in employment. Numerous plaintiff lawyers have already publicly said that they will continue to essentially ignore contract provisions. There are also a range of arguments or challenges to contracts which either remain intact, or will be developed. So the pendulum has swung back towards the middle.
Employers should review their existing employment agreements and ensure that termination provisions:
clearly preserve all ESA minimum entitlements;
address both termination with and without cause;
avoid language that actually purports to contract out of the ESA;
makes clear that statutory rights will be respected; and
are reviewed periodically as employment law continues to evolve.
The decision also confirms that the mere presence of “at any time” or “for any reason” should not automatically trigger concern. The entire agreement matters.
There is, however, an important qualification. The Court of Appeal did not overturn Waksdale v. Swegon North America Inc., 2020 ONCA 391. Under Waksdale, an invalid termination provision can potentially taint the entire termination scheme, including a seemingly valid without-cause provision.
For managers and Human Resources professionals, the practical message is straightforward: termination clauses remain high-stakes provisions, but employers no longer need to fear that a few words, read in isolation, will automatically invalidate an otherwise carefully drafted agreement.
The safest approach remains to have employment agreements reviewed by employment counsel and to ensure that the contract, read as a whole, clearly demonstrates an intention to provide employees with at least their statutory minimum entitlements.