Ontario Employers: Is Your Termination Clause Still Enforceable?
A well-drafted termination clause is one of the most valuable protections an employer can have. If it's enforceable, it can limit what you owe a dismissed employee to the minimums in the Employment Standards Act, 2000. If it isn't, the employee may be entitled to common-law reasonable notice, which can amount to many months of pay.
Why so many clauses fail
Ontario courts interpret termination clauses strictly and in the employee's favour. In Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Court of Appeal held that termination provisions are read as a whole: if the "just cause" part breaches the ESA, the "without cause" part can fall with it, even if the employer never relied on the flawed part.
Courts have continued to apply this strict approach. In Dufault v. The Corporation of the Township of Ignace (2024), for example, a clause allowing termination "at any time" and at the employer's "sole discretion" was found unenforceable.
Common problems we see
- A "just cause" definition that's broader than the ESA's higher "wilful misconduct" standard for withholding minimum entitlements.
- Failing to continue benefits during the statutory notice period, or leaving out ESA severance pay where it applies.
- Wording that suggests the employer can terminate "at any time" or for any reason, without qualification.
- New contracts given to existing employees without fresh consideration, such as a raise, bonus or promotion.
A quick checklist
- Review your template agreements at least once a year, and whenever the law changes.
- Keep just cause language aligned with the ESA.
- Confirm the clause preserves all ESA entitlements: notice, benefits, vacation pay and severance pay where applicable.
- Have new hires sign before their start date, and give real consideration for any mid-employment changes.
- Keep signed copies on file.
