The Court of Appeal for Ontario provides clarification on termination clauses

A recent Court of Appeal for Ontario decision provides clarification on the interpretation of termination clauses and signals a shift away from overly technical readings of employment contracts.

The Court emphasized that termination provisions should be interpreted contextually, with a focus on the parties’ objective intention to comply with the Employment Standards Act, 2000 (“ESA”), rather than on hypothetical violations arising from isolated words or phrases.

In Baker v Van Dolder’s Home Team Inc., 2026 ONCA 568, the Court of Appeal for Ontario considered two appeals arising from separate employment cases, Baker v Van Dolder’s Home Team Inc., 2025 ONSC 952, and Li v Wayfair Canada ULC, 2025 ONSC 2959. The Court found that language permitting termination “at any time” or “at any time and for any reason” did not, when read in context, authorize conduct prohibited by the ESA. As a result, the Court upheld the termination provisions and found that the employers successfully rebutted the presumption of common law reasonable notice.  

I. Background

The appeals arose from two separate wrongful dismissal actions involving similar challenges to termination provisions.

In Baker, the employee's contract permitted the employer to terminate employment without cause “at any time” upon providing only the minimum entitlements required by the ESA. A separate for-cause provision allowed termination for various forms of misconduct while preserving any minimum compensation required under the ESA.

The motion judge held both provisions unenforceable. First, the motion judge found the without-cause provision violated the ESA because the phrase “at any time” could theoretically include circumstances where termination is prohibited, such as reprisal for enforcing ESA rights (s 74) or upon the conclusion of a protected leave (s 53). Second, the motion judge found the for-cause provision similarly invalid because it did not explain the difference between contractual “just cause” and the ESA standard of “wilful misconduct.”

In Li,  the employee challenged a clause allowing termination “at any time and for any reason” with only ESA minimum entitlements. Unlike the decision in Baker, the motion judge found the provision enforceable because the contract repeatedly confirmed the employer's intention to comply with the ESA.

The conflicting outcomes prompted the Court of Appeal to address the proper framework for interpreting termination clauses.

II. The Court's reasoning

1. Termination clauses must be interpreted contextually

In Baker, the Court of Appeal acknowledged the significant uncertainty that has developed in Ontario termination clause jurisprudence, noting that nearly identical provisions have produced opposite outcomes in different cases.

Writing for the Court of Appeal in Baker, Justice Monahan held that employment contracts should not be interpreted using a strictly literal or “magic words” approach. While courts must continue to protect vulnerable employees and strictly enforce the ESA's minimum standards, the task inevitably remains one of contractual interpretation. The objective is to determine what the parties objectively intended when the contract was formed.

The Court of Appeal reaffirmed that employment agreements must be read as a whole and in light of the surrounding circumstances. A clause should not be invalidated merely because an imaginative or hypothetical interpretation could place it in conflict with the ESA.

2. “At any time” language does not automatically render a termination clause unenforceable

The Court of Appeal in Baker rejected the argument that a right to terminate employment “at any time” necessarily renders the termination clause unenforceable. 

According to the Court of Appeal, this language simply reflects the long-standing principle that employers may terminate employment without cause provided they satisfy their legal obligations. When read in context, the phrase does not grant an employer authority to dismiss an employee in circumstances expressly prohibited by legislation.

The Court of Appeal noted that neither employers nor employees could reasonably have intended such a result. Interpreting “at any time” as authorizing unlawful terminations would effectively render the termination clause self-defeating and expose employers to remedies far more severe than common law notice damages, including reinstatement orders and statutory penalties.

As a result, the Court overturned the motion judge’s ruling in Baker, and held that the phrase “at any time” did not render the termination provision unenforceable.

3. “For any reason” language also does not automatically render a termination clause unenforceable 

The Court of Appeal reached the same conclusion in its analysis of the issues raised in Li, regarding Wayfair's clause permitting termination “at any time and for any reason.”

In addressing the appeal from Li, Justice Monahan emphasized that the provision repeatedly stated that the employee would receive all ESA minimum entitlements and that, under no circumstances, would he receive less than required by statute.

Read in context, “for any reason” merely confirms that an employer need not establish cause to terminate employment. It does not imply an intention to terminate employees for prohibited reasons such as exercising statutory rights or taking protected leave.

4. A for-cause clause can be broader than the ESA if ESA minimums are preserved

The Court of Appeal also restored the enforceability of the for-cause provision in Baker.

The motion judge in Baker had concluded that employees might mistakenly believe they were not entitled to ESA notice if their conduct met the contractual definition of cause, even where it did not amount to the higher ESA standard of wilful misconduct.

The Court of Appeal disagreed, reasoning that the clause expressly stated that an employee terminated for cause would still receive any minimum compensation and entitlements required under the ESA. As a result, because the provision preserved ESA rights, it did not contract out of the legislation.

The Court of Appeal confirmed that employers may referentially incorporate ESA standards into an employment contract without explaining every distinction between common law just cause and statutory wilful misconduct. The ESA does not require employers to provide a detailed legal explanation of those concepts within the agreement itself.

III. The result

The Court of Appeal allowed the appeal in Baker and dismissed the appeal in Li.

In both cases, the Court of Appeal found that the termination provisions reflected a clear objective intention to provide employees with at least their minimum ESA entitlements. Because the clauses were enforceable, neither employee was entitled to common law reasonable notice.

The decision represents a significant clarification of Ontario termination clause law. Rather than focusing on isolated words such as “at any time” or “for any reason,” courts are directed to examine whether the contract, read as a whole, objectively demonstrates compliance with the ESA. The ruling may reduce the uncertainty that has followed recent termination clause litigation and provides employers with greater confidence that courts will interpret termination clauses according to their overall purpose rather than invalidate them based on technical or hypothetical interpretations.

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