Summary
The Ontario Court of Appeal has released its highly anticipated decision in respect of the appeal of two employment law decisions from last year, namely Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952 (“Baker”), and Li v. Wayfair Canada ULC., 2025 ONSC 2959 (“Li”), that dealt with, among other things, the enforceability of the termination provisions in each plaintiff’s employment contract. Despite similarities between the termination provisions in both cases, a judge of the Ontario Superior Court of Justice held that the termination provision was unenforceable in Baker, while a different judge held that the termination provision was enforceable in Li. We had previously written about Baker and Li in prior web updates.
Both cases were appealed and considered together by the Ontario Court of Appeal. The Court of Appeal held that the termination provisions in both cases were enforceable and provided helpful clarity on when termination provisions will be enforceable.
The Ontario Superior Court’s Decisions
1. Baker v. Van Dolder’s Home Team Inc.
Mr. Baker was employed as a Controller, Head of Finance and was entitled to two weeks’ termination notice under the Employment Standards Act, 2000 (the “ESA”) when his employment was terminated without cause by the defendant employer. Mr. Baker’s employment was governed by an employment contract that contained the following “with cause” and “without cause” provisions:
Termination without cause: we may terminate your employment at any time, without just cause, upon providing you with only the minimum notice, or payment in lieu of notice and, if applicable, severance pay, required by the Employment Standards Act. If any additional payments or entitlements, including but not limited to making contributions to maintain your benefits plan, are prescribed by the minimum standards of the Employment Standards Act at the time of your termination, we will pay same. The provisions of this paragraph will apply in circumstances which would constitute constructive dismissal.
[…]
Termination with cause: we may terminate your employment at any time for just cause, without prior notice or compensation of any kind, except any minimum compensation or entitlements prescribed by the Employment Standards Act. Just cause includes the following conduct:
- Poor performance, after having been notified in writing of the required standard;
- Dishonesty relevant to your employment (such as misleading statements, falsifying documents and misrepresenting your qualifications for the position you were hired for);
- Theft, misappropriation or improper use of the company’s property;
- Violent or harassing conduct towards other employees or customers;
- Intentional or grossly negligent disclosure of privileged or confidential information about the company;
- Any conduct which would constitute just cause under the common law or statute.
[Emphasis added]
On a motion for summary judgment, a judge found both the without cause and with cause provisions inconsistent with the ESA and unenforceable. Notably, the without cause provision was found unenforceable because the inclusion of termination “at any time” was inconsistent with ESA provisions restricting termination at certain times (e.g., sections 53 and 74 of the ESA governing reinstatement following statutory leaves of absence and the prohibition against reprisal respectively). The motion judge found the earlier Ontario Superior Court decision in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”) to be binding, which held that “at any time” language violated the ESA. While the decision in Dufault was appealed and affirmed by the Court of Appeal, the Court expressly did not adjudicate the dispute regarding “at any time” language.
The judge also found that the with cause provision was unenforceable because, although it referenced ESA minimum entitlements, it did not explain the ESA “wilful misconduct” standard or how it differed from the common law “just cause” definition, creating a risk that “regular employees” would assume they had no termination entitlements upon a for-cause dismissal.
The defendant employer appealed the decision, arguing that the motion judge erred in finding that the without cause and with cause termination provisions were unenforceable.
2. Li v. Wayfair Canada ULC.
Mr. Li was employed as a Senior Product Manager and was entitled to one week of termination notice under the ESA when his employment was terminated without cause by the defendant employer. The plaintiff’s employment was governed by an employment contract that contained the following “with cause” and “without cause” termination provisions:
For all purposes in this letter, “Cause” means any willful misconduct, disobedience, or willful neglect of duty that is not trivial and has not been condoned by the Company and that constitutes “cause” under the ESA.
…
The Company may terminate your employment at any time for Cause without notice, pay in lieu of notice, severance, benefits continuance or other compensation or damages of any kind, unless expressly required by the ESA in which case only the minimum statutory entitlements will be provided.
[…]
After your probationary period concludes, in the absence of Cause, the Company may terminate your employment at any time and for any reason by providing you with only the minimum statutory amount of written notice required by the ESA or by paying you the minimum amount of statutory termination pay in lieu of notice required by the ESA, or a combination of both, as well as paying statutory severance pay required by the ESA, providing benefits continuance for the requisite minimum statutory notice period under the ESA and all other outstanding entitlements, if any, owing under the ESA. These payments and benefits shall fully satisfy all of the Company’s notice, severance and benefits continuance obligations upon the termination of your employment, whether arising under the ESA, the common law or this Agreement, and you agree you shall have no further entitlements unless expressly required by the ESA. In no event will you receive less than your statutory minimum entitlements under the ESA.
[Emphasis added]
Mr. Li sued for wrongful dismissal and brought a motion for summary judgment, arguing both provisions were inconsistent with the ESA and other statutes. However, the motion judge rejected Mr. Li’s arguments, ruling that the without cause provision was enforceable because it “clearly and repeatedly” tied payments to ESA requirements. The judge further distinguished Dufault based on the difference in contractual language between the cases.
The motion judge also found the with cause provision enforceable as it defined “cause” by reference to the ESA wilful misconduct standard and preserved Mr. Li’s minimum statutory entitlements.
Mr. Li appealed the decision, arguing that the judge made an error in finding that the without cause provision was enforceable. Mr. Li did not appeal the finding that the with cause provision was enforceable.
The Court of Appeal Rules that the Termination Provisions Are Enforceable
1. General Interpretive Framework
In its decision, the Court of Appeal helpfully set out the legal framework in which termination provisions in employment contracts are assessed in Ontario. This framework recognizes that:
- employment contracts are interpreted differently from ordinary commercial contracts because of the power imbalance between employer and employee and the importance of employment to personal dignity;
- because employees are most vulnerable at the point of termination and section 5 of the ESA prohibits contracting out of its minimum standards, ambiguous termination clauses must be interpreted in the way that most benefits the employee;
- interpreting an employment contract remains an exercise in ordinary contractual interpretation to determine the parties’ objective intention from the words used and the surrounding circumstances, and not simply applying technical or legalistic rules; and
- courts must avoid a “magic words” approach and should not manufacture ambiguity where none exists. Genuine ambiguity exists only where two or more reasonable interpretations remain after the contract is read holistically.
2. Baker v. Van Dolder’s Home Team Inc.
Assessing Mr. Baker’s contract using the above legal framework, the Court of Appeal held that the without cause provision in Mr. Baker’s contract was enforceable.
The Court of Appeal acknowledged that permitting termination “at any time,” if read literally and in isolation, could conflict with ESA provisions restricting termination in specific circumstances. However, the motion judge had found that neither Mr. Baker nor the employer had intended the termination provision to override statutory protection. The motion judge therefore erred by focusing on the mere possibility of an unlawful interpretation, rather than the parties’ objective intention in the contract.
Additionally, interpreting the “at any time” language as an intention of the employer to permit termination of the employee at times prohibited by the ESA would be self-defeating as the employer would not be able to rely on an unenforceable termination provision to limit Mr. Baker’s termination entitlements to the ESA. Moreover, this interpretation would expose the employer to disproportionately severe consequences for breach, including potential penalties of up to 12 months’ imprisonment and a $100,000 fine, an intention that no reasonable employer would hold. The Court of Appeal found that the parties’ intention was clearly to comply with the ESA, a conclusion that was reinforced by a separate “Minimum Standards” clause in the employment contract committing to ESA compliance “at all times.”
Properly understood, “at any time” merely confirmed that a without cause termination was valid and legally effective regardless of when it occurred.
The Court of Appeal also held that the with cause provision in Mr. Baker’s contract was enforceable.
Termination without notice for “just cause” at common law is a lower threshold for employers to meet compared to the “wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned by the employer” standard under the ESA. Establishing the higher ESA standard requires employee conduct that is deliberate and committed essentially with knowledge that it was wrong. Even where “just cause” exists at common law, an employee remains entitled to ESA minimums unless the conduct meets the higher statutory threshold.
The Court of Appeal recognized that termination clauses that deny ESA minimums for conduct meeting only a broader contractual or common law “just cause” standard have been held unenforceable. In Mr. Baker’s case, the termination with cause provision in his contract defined “cause” more broadly than wilful misconduct. However, the provision expressly preserved his entitlement to ESA minimum compensation if terminated for cause.
Although the provision preserved Mr. Baker’s ESA entitlement if terminated for cause, the motion judge had found the clause unenforceable on “potential unfairness” grounds because it detailed a contractual “just cause” standard without explaining how the ESA wilful misconduct standard differed. However, the Court of Appeal disagreed with the motion judge’s decision. The termination provision’s express preservation of Mr. Baker’s entitlement to ESA minimum compensation even upon a for-cause termination brought the provision into alignment with the ESA, and he would be entitled to termination notice, benefits continuation, and severance pay unless he engaged in conduct that fell within the narrower wilful misconduct standard. Employers can referentially incorporate ESA entitlements without elaborating the underlying statutory test and maintain an enforceable termination provision.
In conclusion, the Court of Appeal allowed the employer’s appeal and held that Mr. Baker’s termination entitlements were limited by his employment contract, which included enforceable without cause and with cause termination provisions.
3. Li v. Wayfair Canada ULC.
The Court of Appeal held that the without cause provision in Mr. Li’s contract was enforceable.
The Court of Appeal’s reasoning on the “at any time” contractual language in Baker applied equally to Mr. Li’s clause. Notably, in light of the without cause provision’s repeated affirmations of Mr. Li’s entitlement to minimum benefits under the ESA, it was implausible to interpret the “at any time” language as reflecting a mutual intention to permit the employer to violate statutory prohibitions on termination in the ESA and other statutes.
However, because sections 53 and 74 of the ESA restrict termination based on the reason for dismissal (not merely its timing), the added words “for any reason” required separate analysis.
The Court of Appeal held that the words “for any reason” were consistent with the ESA. The Court of Appeal upheld the motion judge’s finding that the termination provision “clearly and repeatedly indicates payments will be made as ‘required by’ or ‘under the ESA’”. Based on the scrupulous intention to comply with the ESA, it was illogical to read the inclusion of the words “for any reason” to express a contrary intention by either Mr. Li or the employer.
Moreover, this interpretation aligned with prior Supreme Court of Canada jurisprudence in Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, which rejected an implied requirement of “cause or legitimate business reasons” to terminate an employee’s employment and affirmed an employer’s right to terminate without cause regardless of the reason. This interpretation also aligned with numerous Ontario decisions enforcing similar “for any reason”/”sole discretion” language in termination provisions.
The Court of Appeal held that “for any reason” simply meant the employer did not need to disclose its reason for termination. The employer simply needed to provide the employee with their contractual entitlement on termination, which must, at a minimum, be the ESA entitlements. This language did not signal an intention to override the ESA.
In conclusion, the Court of Appeal upheld the motion judge’s decision finding that the termination provisions in Mr. Li’s employment contract were enforceable and dismissed Mr. Li’s appeal.
Takeaways
The Court of Appeal’s decision in respect of Baker and Li provides significant clarity to employers and employees on how termination provisions will be interpreted. Notably, the Court of Appeal emphasized the importance of assessing the parties’ intentions by examining the entirety of an employment contract when determining whether the termination provisions within the employment contract are enforceable. Repeated contractual language stating the parties’ intention to comply with the ESA will be a strong defence against an allegation that specific contractual language purports to contract out of the ESA, even if the specific language could, when read in isolation, be interpreted on its face in a different manner.
Need More Information?
For more information or assistance with employment contracts, contact Clifton Yiu at cyiu@filionlaw.com or your regular lawyer at the firm.