For years, Ontario employers have had good reason to worry about their termination clauses. Even clauses intended to comply with the law have been found unenforceable because their wording fails to meet the requirements of the Employment Standards Act, 2000 (the “ESA”). The consequences can be significant when that happens: the employee becomes entitled to common law reasonable notice, which can be much higher than the statutory minimum.
How we got here
It all began with Machtinger v HOJ Industries Ltd, [1992] 1 SCR 986, where the Supreme Court of Canada held that an employment contract cannot contract out of ESA minimum notice, and that an invalid termination clause leaves employees entitled to seek common law reasonable notice. Twenty-five years later, Wood v Fred Deeley Imports Ltd, 2017 ONCA 158 marked a turning point, ushering in a more rigorous, ESA-focused approach to termination clauses. The Court of Appeal made it clear that an employer does not save a termination clause merely by broadly referring to statutory minimums or by later paying what the ESA requires. The contract itself must be drafted so that, from the outset, it preserves all minimum entitlements under the ESA, including benefits and severance. The decision also emphasized that ambiguity is interpreted in the employee’s favour, encouraging employers to get the wording right from the start. Waksdale v Swegon North America Inc, 2020 ONCA 391 (“Waksdale”) raised the stakes further for employers by holding that an unenforceable for-cause termination provision can invalidate an otherwise valid without-cause provision, even when the employee was dismissed without cause.
In 2024, Dufault v Ignace (Township) brought the phrase “at any time” into focus. At trial, the Superior Court found the without-cause provision unenforceable, in part because it allowed the employer to terminate “at any time” in its “sole discretion.” The Court of Appeal decided the case on the for-cause clause instead. The Court held that a clause allowing termination “without notice or pay in lieu” for “cause” was too broad because it could apply below the ESA wilful-misconduct threshold, and it then rendered the remainder of the termination language invalid as well, based on Waksdale. Dufault became a catalyst for challenges to broad termination-clause language, particularly the phrase “at any time”. The debate continued in cases such as Li v Wayfair, 2025 ONSC 2959 (“Li”), and at the trial level in Baker v Van Dolder’s Home Team Inc, 2025 ONSC 952 (“Baker”), before the issue ultimately reached the Court of Appeal.
The Superior Court followed Dufault in Baker, holding that a without-cause termination provision allowing termination “at any time” was unenforceable because it could permit termination contrary to the ESA. The Court saw no reason to depart from the earlier decision.
Here’s where things took a different turn. Taking the opposite approach, the Superior Court later in 2025 held in Li that a clause allowing termination “at any time and for any reason” was actually enforceable when read in the context of repeated ESA-minimum language and an express statement that the contract’s definition of “cause” applied “for all purposes” while preserving statutory minimums. Li therefore departed from the reasoning in Baker and did not find that the disputed phrase “at any time and for any reason” authorized unlawful terminations.
A New Chapter: The Court of Appeal Brings Clarity
When trial courts reached opposite conclusions about termination clauses containing virtually identical key phrases, Ontario employers were left wondering whether their contracts would hold up. In August 2026, the Court of Appeal heard the appeals in Baker and Li together, offering much-needed (and much-awaited) clarity on the principles governing the interpretation of termination clauses.
In Baker v Van Dolder’s Home Team Inc.; Li v Wayfair Canada ULC, 2026 ONCA 568, the Court upheld both termination clauses. It applied an approach generally used in contractual interpretation: read the agreement as a whole, identify the parties’ objective intentions, and avoid finding ambiguity from hypothetical readings.
Applying that approach, the Court found:
- “At any time” addresses timing. It does not authorize terminations the ESA prohibits.
- “For any reason” means the employer need not give a reason. It does not permit an unlawful one.
- A for-cause clause need not explain the difference between common-law just cause and ESA wilful misconduct, as long as it expressly preserves ESA minimum entitlements.
- Contract language committing the employer to ESA compliance is meaningful evidence of the parties’ intentions, not mere boilerplate.
What Baker did not change
Baker is not a blanket endorsement of existing contracts. The Court declined to revisit Waksdale, so one defective provision can still sink the entire termination scheme. A clause that actually takes away statutory entitlements will still fail, and genuine ambiguity still favours the employee. It remains to be seen whether leave to appeal to the Supreme Court of Canada will be granted.
So, is there more certainty for employers?
Yes and no. The Baker appeal suggests that courts will be less inclined to invalidate a termination clause based on an isolated phrase that, read in context, does not permit an unlawful termination. However, the need to protect ESA minimum entitlements in every circumstance remains unchanged, including notice or pay in lieu, benefits continuation, severance where applicable, and any statutory entitlements that remain payable on termination for cause. In both Baker and Li, the Court found that the contracts, read as a whole, preserved those statutory protections.
The practical lesson is that the strongest termination clause is not the most complex. It is the one that leaves no doubt the employee will always receive at least what the ESA requires.
If your employment agreements were drafted before Baker, or you are unsure whether they would hold up if challenged, our employment lawyers can review them and help you draft with confidence.
