Ontario Court of Appeal returns to a practical, common-sense approach to termination provisions

Termination clauses are among the most important provisions in an employment agreement, as they are meant to provide certainty about an employee’s entitlements when employment ends. In recent years, however, they have often done the opposite.

Courts across Canada have increasingly been scrutinizing termination language, and this has created an inconsistent legal landscape where clauses are regularly challenged (and frequently found unenforceable) based on technical or hypothetical defects. As employees more frequently challenge the contractual limits placed on their termination entitlements, some employers may be left wondering whether termination clauses are still worth the effort.

The Ontario Court of Appeal’s recent decision in Baker v. Van Dolder’s Home Team Inc., 2026 ONCA 568 (Baker) provides a welcome return to a more practical and common-sense approach to the enforceability of termination provisions, as the Court upheld two without cause termination provisions that limited employees’ entitlements to statutory minimums.

This case provide helpful guidance to employers in drafting their termination provisions and serves as an important reminder that written employment agreements still matter.

Reining in the uncertainty: Baker v. Van Dolder’s Home Team Inc.

In Baker, the Ontario Court of Appeal addressed two lower court decisions that exemplified the uncertainty surrounding the enforceability of termination clauses. Despite the impugned language in the without cause termination provisions being “virtually identical,” the lower courts had come to opposite conclusions on whether the provisions were enforceable:

• In Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952, the motion judge found that the words “at any time” in a without cause termination provision rendered the clause unenforceable, because those words could be read as permitting termination in circumstances prohibited by the Ontario Employment Standards Act, 2000 (such as at the end of a protected leave of absence or in reprisal for a protected action).
• However, in Li v. Wayfair Canada ULC., 2025 ONSC 2959 (Li), the motion judge upheld a without cause termination provision that permitted the employer to terminate employment “at any time and for any reason,” as the contract made it clear that the employee would be provided with his statutory entitlements.

The Ontario Court viewed this appeal as an opportunity to clarify “the relevant legal principles governing the interpretation of termination provisions in employment contracts.” In doing so, the Court emphasized that while employment contracts are different from ordinary commercial agreements, they are still contracts. The task remains one of contractual interpretation: determining the parties’ objective intentions by reading the agreement as a whole, in light of the surrounding circumstances.

Turning to the termination provisions at issue, the Court held that the phrases “at any time” and “at any time and for any reason” do not automatically render a termination provision unenforceable or inconsistent with Ontario’s employment standards legislation. In the Court’s view, those words do not, on their own, suggest that an employer is attempting to contract out of statutory protections or terminate employment in circumstances prohibited by statute. The proper question is whether the employment agreement, read as a whole and in context, objectively demonstrates an intention to comply with the applicable minimum standards legislation – and in both cases, it did.

Importantly, the Court rejected an overly technical approach to interpretation. It cautioned that a termination provision should not be treated as ambiguous simply because multiple potential or hypothetical interpretations can be imagined.

The Court also confirmed that savings clauses can play an important role in the interpretation of an employment agreement. That is, where an employment agreement clearly states that the employee will receive the minimum entitlements required by employment standards legislation, that language may support the conclusion that the parties intended the agreement to comply with the statute. A savings clause will not necessarily cure every drafting problem, but it can be relevant when interpreting the agreement as a whole.

In the end, the Ontario Court of Appeal upheld both termination provisions with the result that each employee was entitled to receive only the statutory minimum termination entitlements. The Court addressed the concern about whether this result was “harsh” by noting that if the minimum statutory entitlements are deemed to be insufficient or inadequate substitutes for common law reasonable notice, that is a matter for the legislature rather than the courts. The Court’s role is to determine what the parties objectively intended and reasonably understood their words to mean, not to strain to find ambiguity where none exists in an effort to reach a presumptively more employee-favourable result.

Key takeaways for employers

This decision serves as an important reminder that written employment agreements (and their termination provisions) still matter, as the certainty that comes with a clear and enforceable termination clause is beneficial. A clear and enforceable termination clause can provide valuable certainty, help manage termination-related risk and avoid the significant cost and unpredictability of a common law reasonable notice claim.

The benefit of a termination clause is apparent in Li. There, the clause limited the employee’s entitlements to the statutory minimum, which, in the circumstances, was one week of basic salary and benefits. The motion judge noted, in obiter, that if the clause had been unenforceable, he would have awarded the employee four months’ common law reasonable notice. Because the Ontario Court of Appeal upheld the clause, however, the employee remained limited to one week of notice.

Although Baker is an Ontario decision, the Court’s reasoning is grounded in established principles of contractual interpretation and reinforces, at its core, that termination clauses should be interpreted in a practical, common-sense manner. For employers outside of Ontario (including those in Western Canada), the decision provides helpful guidance and reassurance that properly drafted termination clauses can still be enforceable. We expect that the Court’s contextual approach — that is, reading the agreement as a whole rather than isolating words or phrases in search of hypothetical defects — will be followed by courts in these other jurisdictions as well.

This decision is a useful reminder for employers to review their existing employment agreements and offer letter templates. To learn more about updating or amending existing employment agreements, contact a member of our Labour and Employment team. Our team regularly assists employers with drafting, reviewing and updating employment contracts tailored to their workplace needs.

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