Ontario employers have faced significant uncertainty in recent years over how courts will interpret and enforce termination provisions in employment agreements. Seemingly minor differences in wording have sometimes determined whether an employer can rely on a contractual termination clause or must instead provide substantially greater common law notice.
The Ontario Court of Appeal has now provided important guidance in a decision combining two appeals of summary judgment decisions. These cases involved similar termination language but produced different results at the Superior Court level. In Baker v. Van Dolder’s Home Team Inc. and Li v. Wayfair Canada ULC, the Court upheld the termination provisions in both employment agreements and emphasized that employment contracts must be interpreted as a whole rather than by isolating individual words or phrases.
For Ontario employers, the decision provides greater clarity regarding the enforceability of carefully drafted termination provisions and could significantly affect the defence of future wrongful dismissal claims.
Similar Termination Language Produced Conflicting Decisions
The appeals arose from two wrongful dismissal cases involving similar termination provisions.
Baker: Termination “At Any Time” Clause Found Unenforceable
In Baker v. Van Dolder’s Home Team Inc., the employer’s agreement stated that it could terminate employment “at any time” without cause while providing the employee with the minimum entitlements required by the Employment Standards Act, 2000 (ESA).
The Superior Court found the clause unenforceable. Among other findings, it concluded that the phrase “at any time” was inconsistent with provisions of the ESA that prohibit termination in certain circumstances, including reprisals and some terminations associated with statutory leaves.
The agreement’s “with cause” provision was also found unenforceable, despite expressly preserving the employee’s minimum ESA entitlements.
Li: Termination “At Any Time and For Any Reason” Found Enforceable
Li v. Wayfair Canada ULC involved a provision stating that the employer could terminate employment without cause “at any time and for any reason,” subject to providing the employee with the minimum entitlements required by the ESA.
There, the Superior Court reached the opposite conclusion. Reading the agreement as a whole, it found that the clause was intended to limit the employee to ESA minimum entitlements rather than permit the employer to disregard statutory protections.
The conflicting decisions created obvious uncertainty for employers attempting to determine whether similarly drafted termination clauses would withstand judicial scrutiny.
Employment Agreements Must Be Considered as a Whole
The Court of Appeal used the combined appeals to clarify the applicable interpretive framework. Employment agreements continue to receive special treatment because of the power imbalance between employers and employees and the remedial purpose of employment standards legislation. Employers cannot contract out of minimum ESA requirements, and termination language must clearly displace an employee’s presumptive entitlement to common law reasonable notice.
At the same time, the Court emphasized that interpreting an employment agreement remains an exercise in contractual interpretation. The objective is to determine what the parties reasonably and objectively intended based on the language of the agreement as a whole and the surrounding circumstances.
Enforceability Cannot Be Determined Based on a Single Word or Phrase
This means courts should not isolate a particular word or phrase and determine enforceability solely by identifying a hypothetical unlawful interpretation. Ambiguity exists only where there are two or more reasonable competing interpretations when the agreement is considered in context.
The Court specifically cautioned against a legalistic “magic words” approach in which the inclusion or omission of particular terminology automatically determines the validity of a clause.
“At Any Time” Does Not Automatically Invalidate a Clause
The Court rejected the argument that permitting an employer to terminate employment “at any time” necessarily violates the ESA. Read literally and in isolation, the phrase could theoretically encompass circumstances in which legislation prohibits termination. However, the Court concluded that this was not a reasonable interpretation of the agreements before it.
In Baker, the contract repeatedly demonstrated an intention to comply with the ESA. It also contained a minimum standards clause stating that the employer would comply with the ESA “at all times” and that statutory requirements would prevail over inconsistent contractual terms.
In that context, the words “at any time” simply meant that a without-cause termination could be contractually effective regardless of when it occurred. They did not authorize the employer to ignore legislation prohibiting termination in particular circumstances. The Court found that interpreting the provision otherwise would undermine the entire purpose of the termination clause, which was intended to displace common law reasonable notice while preserving statutory minimum entitlements.
“For Any Reason” Can Also Be Enforceable
The Court reached a similar conclusion regarding the agreement in Li, which allowed termination “at any time and for any reason.” That agreement repeatedly confirmed that the employee would receive minimum ESA notice, termination pay, severance pay, benefits continuation and any other applicable statutory entitlements.
Against that background, the Court found it unreasonable to interpret “for any reason” as permitting the employer to violate statutory restrictions on dismissal. Instead, the wording meant that the employer did not require a particular contractual reason to terminate employment without cause. It did not exempt the employer from protections against reprisals, discrimination or other unlawful terminations.
The termination provision was therefore upheld.
Important Guidance on With Cause Termination Clauses
The decision also clarifies the distinction between common law “just cause” and the higher ESA standard of “wilful misconduct.” An employer may have just cause at common law sufficient to eliminate an employee’s entitlement to common law reasonable notice without necessarily satisfying the higher ESA threshold required to eliminate statutory termination entitlements.
For this reason, a contract that denies all termination entitlements whenever common law just cause exists may violate the ESA. The Baker agreement avoided that problem because it expressly stated that an employee terminated for cause would still receive any minimum compensation or entitlements required by the ESA. The Court held that this language brought the provision into compliance with the statute.
Even where contractual just cause existed, the employee would continue to receive applicable statutory entitlements unless the employee’s conduct satisfied the ESA’s narrower wilful misconduct standard. Significantly, the Court also rejected the suggestion that employers must explain within their contracts the detailed legal distinction between common law just cause and ESA wilful misconduct. Employers may incorporate statutory entitlements by reference to the ESA.
The Decision Does Not Overturn Waksdale
Although the ruling is significant for employers, it does not eliminate every restriction developed in Ontario termination clause jurisprudence. In particular, the Court declined to reconsider Waksdale v. Swegon North America Inc.
Under Waksdale, where one termination provision in an employment agreement violates the ESA, all other termination provisions are also rendered unenforceable. The Court was asked to convene a five-judge panel to reconsider that principle, but that request was denied prior to the hearing. Because both the with-cause and without-cause provisions in both agreements fully complied with the ESA, the Waksdale issue was rendered moot.
Employers must therefore continue ensuring that all components of their termination provisions comply with minimum employment standards.
What Does Baker and Li Mean for Ontario Employers?
“At Any Time” or “For Any Reason” Clauses Not Automatically Unenforceable
For employers, this decision provides greater certainty in both drafting employment agreements and defending wrongful dismissal claims. Phrases such as “at any time” or “for any reason” are not automatically fatal simply because, when removed from their contractual context, they could theoretically encompass conduct prohibited by statute.
The entire agreement matters. Clauses confirming compliance with the ESA, preserving statutory minimum entitlements and establishing that statutory requirements prevail over inconsistent contractual language can all assist in demonstrating the parties’ objective intention.
ESA Compliance Is Still Critical
At the same time, careful drafting remains essential. Termination provisions must still comply fully with the ESA, clearly displace common law reasonable notice and operate consistently with the principles established in cases such as Waksdale.
For employers with existing employment agreements, the decision provides a timely reason to review termination language in light of the Court of Appeal’s clarified interpretive framework. It may also provide important new arguments when defending wrongful dismissal claims based on alleged technical deficiencies in otherwise ESA-compliant termination provisions.
Contact Willis Business Law in Windsor-Essex County for Innovative Employer-Side Employment Law Services
If your business is reviewing existing employment agreements, preparing new contracts, or defending a wrongful dismissal claim involving a termination clause, Willis Business Law can help. Our knowledgeable employment lawyers, including our Associate, Brandon Beck, can help assess your agreements and provide practical guidance based on the latest appellate decisions.
Willis Business Law proudly serves employers throughout Windsor-Essex County and all surrounding areas, including Amherstburg, Chatham-Kent, Essex, Kingsville, Lakeshore, LaSalle, Leamington, Pelee, Tecumseh, and Sarnia. To discuss your employment law matter, please contact us online or call (519) 945-5470.