Finally, a practical and common-sense approach to termination clause interpretation
In a significant win for employers, the Ontario Court of Appeal has upheld the enforceability of termination clauses in Baker v. Van Dolder's Home Team Inc.; Li v. Wayfair Canada ULC. 2026 ONCA 568, rejecting the increasingly technical approach that has dominated termination clause litigation in recent years. Both of these cases came before the Court of Appeal to seek judicial determination, in part, on whether the phrases “at any time” or “for any reason” invalidated a termination clause. In both of these cases, the termination clauses in question contracted out of common law reasonable notice and limited the employee’s entitlements to those under the Employment Standards Act, 2000 (“ESA”). Employee’s counsel bases for invalidating these clauses were that the use of the phrases “at any time” and in the Wayfair decision additionally, “for any reason” created potential hypothetical violations of the ESA.
The Court openly acknowledged the uncertainty that has plagued this area of law, noting that employment lawyers and judges have struggled to reconcile a long line of decisions where nearly identical termination provisions have produced opposite results. The Court observed that litigation has too often turned on "pedantic or trivial" drafting differences, with a single word sometimes determining whether a clause survives or fails.
A Return to Practical Contract Interpretation
The key message from the Court is that in interpreting a termination clause, courts must adopt a practical, common-sense approach that considers:
The termination provision as a whole;
The contract as a whole;
The surrounding circumstances; and
The parties' objective intention at the time the agreement was made.
The Court made it quite clear that termination clauses should not be interpreted by isolating individual words and searching for hypothetical violations of the ESA.
"At Any Time" Is Not Fatal
In Baker, the employee argued that a provision allowing the employer to terminate employment "at any time" violated the ESA because there are statutory restrictions on when an employee can be dismissed, such as during protected leaves or as reprisal for exercising ESA rights. The Court rejected that argument.
According to the Court, no reasonable reader would understand the phrase "at any time" as authorizing the employer to breach the ESA. When read in the context of a contract that repeatedly committed to ESA compliance, the wording simply meant that the employer retained the right to terminate employment without cause, subject to applicable legal restrictions.
Similarly, in Li, the Court upheld wording permitting termination "at any time and for any reason," finding that the clause did not override statutory protections and merely reflected the employer's right to terminate employment without cause while providing ESA minimum entitlements.
ESA References Matter
Another important aspect of the decision is the Court's confirmation that employers may validly incorporate ESA minimum standards, what we refer to as ESA savings clauses, by reference. In Baker, the Court upheld a for-cause provision that provided employees would receive any minimum entitlements required by the ESA, even though the contractual definition of cause was broader than the ESA's "wilful misconduct" standard. The Court rejected the argument that employers must explain the distinction between common law just cause and ESA wilful misconduct in detail. A cause termination clause is not invalid simply because it does not provide a legal explanation or summary to employees of the difference between the ESA and the common law.
What This Means for Employers
The decision provides welcome relief for employers and counsel who have struggled with an increasingly unforgiving line of termination clause cases.
Most importantly, the Court has made clear that:
Courts should not search for theoretical ESA violations that the parties never intended.
Individual words should not be read in isolation.
Clauses should be interpreted in their full contractual context.
Clear references to ESA compliance will be given meaningful weight.
Common-sense contractual interpretation remains the governing principle.
Key Takeaway
The Court of Appeal's decision represents a significant course correction in Ontario termination clause jurisprudence. While employers must still draft carefully and ensure compliance with the ESA, the Court has signaled that it will no longer invalidate otherwise ESA compliant termination clauses based on strained or overly technical interpretations. For employers, this is perhaps the most encouraging message from the Court in years: termination clauses should be assessed based on what reasonable parties intended, not on hypothetical violations derived from isolated words taken out of context.
