September 1, 2026

By Jacob Thompson

The Ontario Court of Appeal in a recent landmark decision, Baker v. Van Dolder’s Home Team Inc., has provided fresh guidance about when termination clauses in employment agreements will be enforceable. The new bottom line is that there are no “magic words” necessary to make the clause enforceable. Also, there are no “magic words” which make it void and unenforceable.  

The strength of the clause will depend on the interpretation of the wording in context, together with surrounding circumstances, to determine the true intention of the employer. If that analysis shows that the employer intended to comply with the minimum compensation which a non-union employee can expect to receive after termination without cause under Ontario’s Employment Standards Act 2000 (‘ESA”), the clause may be enforceable. 

 Employees still might have other arguments about enforceability, and the recent decision will not affect those issues. If anything, our view is that those other issues will be raised more frequently and more aggressively. New battles remain to be fought. 

Fair and balanced termination clauses will continue to save both employers and employees the uncertainty, the time, stress, inconvenience and expense of these battles.  

THE ISSUE 

As we have discussed in a series of articles, there is a significant difference between the minimum compensation which a non-union employee can expect to receive after termination without cause under the ESA and their rights under common law.  

For good reasons, employers often prefer the predictability provided by a termination clause in an employment contract, whether a formal contract or a letter of employment. Often, these clauses provide much less compensation than would be payable if there was no clause. Many limit the compensation to the minimums under the ESA. 

Of course, many employees, once fired want more compensation than the contract provides. 

This has led to a lot of battles over the validity of the termination clause. Whether a termination clause in an employment contract or employment letter is enforceable can determine whether an employee receives only their contractual or statutory minimums or the greater protection of the common-law reasonable notice.  

Employees or their lawyers have often argued that specific words in the termination clause create uncertainty as to whether the clause violates the ESA minimum guarantees. Any uncertainty, what lawyers and judges call “ambiguity”, is usually resolved against the employer. This is because the employer typically drafts the agreement and has the responsibility to make it clear.  

Often, judges are concerned because the gap between what an employee is entitled to under the ESA and what they are entitled to under the common law appears so large that it is unfair to limit an employee to only the ESA minimum entitlements. Employers and their lawyers argue that this appearance of unfairness has resulted in decisions which have stretched the interpretation too far in the employee’s favour. 

THE CASE  

In Baker v Van Dolder’s Home Team Inc., the court starts out by acknowledging the problems created by uncertainty in the case law relating to the enforceability of termination provisions and tries to chart a new course. 

Baker involved two separate appeals concerning similar, but slightly different, employment contract termination clauses.  

In the employer’s appeal involving Mr. Baker, the employee argued that the presence of wording in the termination clause allowing the employer to terminate without cause “at any time” made the clause unenforceable. relying on earlier decisions, the Superior Court motion judge had agreed with the employee’s argument. 

The Court also heard Mr. Li’s appeal. In that case, the employer had successfully argued in Superior Court that the wording “at any time and for any reason” in the termination clause of his employment contract did not make the termination clause void. 

In both appeals, the Court of Appeal ruled that the termination clauses were enforceable. 

The Court rejected a narrow “magic words” approach in which particular words considered in isolation are used to decide the legal effect termination clauses. Just as a work of art cannot always be understood by examining a single brushstroke, a termination clause cannot necessarily be understood by examining a single phrase. Courts must consider the agreement as a whole and its surrounding circumstances to determine what the parties intended when they drafted the clause.  

They went on to caution that if the minimum entitlements under the ESA are for any reason believed to be insufficient or inadequate substitutes for common law reasonable notice, that is a matter for the legislature rather than the courts. Judges should not resort to “straining to find ambiguity where none exists, on the assumption that such an approach will somehow benefit employees.” 

TAKEAWAYS  

• Look at the whole contract.  

• A termination clause should not only be analyzed word-by-word.  

• There are no “magic words”. 

•  The presence or absence of a particular phrase does not automatically decide enforceability.  

• The presence of the phrases “at any time” or “for any reason” does not automatically void a termination clause.  

• Both employers and employees can expect their lawyers to be extremely interested in the circumstances surrounding the agreement 

• ESA minimums must always be paid, except in cases of “willful misconduct”, a stricter test than “just cause” and quite different from “without cause”.   

• An employer cannot contract out of the ESA minimums. 

 

GOING FORWARD 

• We expect that employees and their lawyers will continue to fight for common law notice. 

• Baker does not say anything about when clauses may be void due to “unconscionability”, and this might well be the next battleground.  

• The test of unconscionability in employment contracts also depends upon the surrounding circumstances and is very fact specific. 

• The basic standard in an “unconscionability” argument is whether there was inequality of bargaining power at the time the contract is formed, that the bargain was “improvident” (dramatically unfair), and that the employer did not take advantage of a vulnerable employee. 

• Courts say defining what is “improvident” is not an exact science – in other words, judges have a lot of discretion in these situations. 

• For employers, it is particularly important to make sure that the employee understands the terms of the agreement. We expect arguments based upon the employee not realizing the difference between the provisions of the clause and their common law rights. 

• A clause that is fair and balanced is still the best path to avoiding uncertainty and the time commitment, stress, inconvenience and expense of these battles. Providing a bit more termination pay is often the employers’ best defence.  

• Employees need to be careful what they sign. Courts will not protect you just because you signed a bad bargain. If in doubt, talk to a lawyer.  

 

 WHAT WEILERS LLP CAN DO TO HELP YOU  

Whether you:  

• Need help drafting an employment contract;  

• Are being asked to sign a contract;  

• Need to update an existing contract; or  

• Need advice or representation about termination, 

our employment lawyers can help.  

We act for both employers and employees in the non-unionized sector.  

For all your employment law needs, give Weilers LLP a call. We may be the right lawyers for you.  

 

Cory Martins, summer law student, contributed to the drafting of this article.