For years, employment lawyers in Ontario have had a strange relationship with termination clauses. We love them, we hate them, and sometimes we spend months litigating over a single word buried in a contract drafted years earlier. In fact, it was not uncommon for a termination clause to be struck down because of language that, to most readers, seemed entirely harmless. Employers could invest significant time and money drafting an agreement intended to comply with the Employment Standards Act, 2000 (“ESA”), only to find a court later concluding that a particular phrase rendered the provision unenforceable.
The Ontario Court of Appeal’s recent decision in Baker v. Van Dolder’s Home Team Inc., 2026 ONCA 568 may finally bring some clarity to an area of law that has often been criticized as unpredictable and overly technical. The Court’s message is clear. Termination provisions should be interpreted using common sense and in context, rather than by searching for theoretical inconsistencies hidden within isolated words or phrases.
Background
The decision arose from two employment agreements.[1] In Baker, the contract allowed the employer to terminate employment without cause “at any time” while providing the employee with the minimum entitlements required by the ESA. In Li, the contract permitted termination “at any time and for any reason” while repeatedly affirming that the employee would receive all minimum statutory entitlements under the ESA.
Despite the similarities between the provisions, the lower court decisions reached different conclusions. In Baker, it was found that the words “at any time” violated the ESA because there are circumstances in which employees cannot legally be terminated, such as during certain protected leaves or as a reprisal for exercising ESA rights. In Li, however, a different decision was found even though similar language was used. The result was precisely the type of uncertainty that has plagued termination clause litigation in Ontario for years.
Contractual interpretation
The Court of Appeal took the opportunity to address the broader problem. The Court acknowledged what many employment lawyers have been saying for some time: the law in this area had become difficult to reconcile. Employers, employees, and their counsel were often left guessing whether a termination clause would survive judicial scrutiny. In some cases, litigation turned on what appeared to be little more than linguistic minutiae. A single word could mean the difference between paying ESA minimums and paying many months, or even years, of common law notice.
According to the Court of Appeal, that is not how contractual interpretation is supposed to work.
The Court emphasized that employment agreements must still be interpreted as contracts. While courts must remain mindful of the power imbalance between employers and employees and the protective purpose of the ESA, they must also determine what the parties objectively intended when they entered into the agreement. That requires reading the contract as a whole and considering the surrounding context, not isolating a particular phrase and imagining every conceivable interpretation.
Applying those principles, the Court concluded that the phrases “at any time” and “at any time and for any reason” did not violate the ESA. When read in the context of the entire agreements, both contracts repeatedly stated that the employees would receive all minimum ESA entitlements. The Court found it implausible that the parties intended those same clauses to simultaneously authorize conduct that would violate the ESA.
Put differently, the Court rejected the argument that the words “at any time” meant an employer could terminate an employee during a protected leave or in retaliation for exercising a statutory right. That interpretation, while theoretically possible if the words were examined in complete isolation, was inconsistent with the overall purpose and wording of the contracts. The Court noted that contractual provisions should not be interpreted in a vacuum and cautioned against a “magic words” approach to employment agreements.
With cause termination clauses
The Court also addressed another increasingly litigated issue regarding cause termination clauses. In Baker, the employment agreement defined “just cause” broadly but expressly stated that the employee would nevertheless receive any minimum compensation or entitlements required by the ESA. The lower court had found this problematic because the employment agreement did not explain the difference between common law just cause and the ESA’s narrower “wilful misconduct” standard.
The Court of Appeal disagreed and confirmed that the employment agreement did not need to provide a detailed lesson in employment law explaining the distinction between just cause and wilful misconduct. What mattered was that the agreement preserved the employee’s statutory entitlements. Because the clause expressly provided that ESA minimum entitlements would still be paid where required, it complied with the ESA and was enforceable.
For employers, this aspect of the decision is particularly significant. In recent years, many termination clauses were successfully challenged because they denied ESA entitlements in circumstances where employee conduct fell short of the ESA’s wilful misconduct threshold. The Court reaffirmed that employers can maintain broader contractual definitions of cause, provided the agreement clearly preserves any minimum entitlements required by the ESA.
So, what does this decision mean going forward?
First, employers may finally have some reassurance that courts will focus on the overall substance of a termination clause rather than hunting for technical defects based on unlikely hypothetical interpretations.
Second, language such as “at any time” or “for any reason” should no longer be viewed as inherently fatal. The presence of those phrases, standing alone, does not make a termination clause unenforceable. The key question is whether the agreement, read as a whole, demonstrates an intention to comply with statutory minimum standards.
Third, employers should not interpret this decision as a green light to stop reviewing their employment agreements. A termination provision that actually contracts out of ESA minimum standards can still invalidate the termination provision(s). The difference is that courts may now be less willing to strike down clauses based solely on speculative or strained interpretations.
Perhaps the most important takeaway is that the Court appears to be reintroducing a measure of predictability into termination clause litigation. For years, employment lawyers warned clients that termination clauses sometimes seemed to operate like a legal game of Jenga: remove one word and the structure collapses; add one word, and it collapses differently. This decision suggests the Court has grown weary of that exercise.
Instead, the focus has returned to a simpler question. What would reasonable parties have understood the contract to mean?
For employers, that is welcome news. Well-drafted agreements that clearly express an intention to provide at least ESA minimum entitlements may now stand a better chance of being enforced according to their terms. While termination clause litigation is unlikely to disappear anytime soon, the Court of Appeal has provided a clearer roadmap and, perhaps more importantly, a reminder that common sense still has a role to play in employment law.
If you have any questions related to this blog post, contact myself, Izak Hersch at izak.hersch@siskinds.com or a lawyer in the Siskinds Labour & Employment department.
[1] Two decisions being appealed and heard together. Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952 (“Baker”) and Li v. Wayfair Canada ULC., 2025 ONSC 2959, (“Li”)