Levelling the Playing Field: Ontario Court of Appeal Clarifies Termination of Employment Clauses

The Ontario Court of Appeal’s decision in Baker v. Van Dolder’s Home Team Inc. (2026 ONCA 568) (which also addressed Li v. Wayfair (2025 ONSC 2959)), released on August 6, 2026, clarifies the proper approach to interpreting termination of employment provisions in employment contracts. While recent Ontario decisions have sometimes set aside such provisions in favour of common law reasonable notice because of apparent inconsistencies with the Employment Standards Act, 2000 (the “ESA”), Baker confirms that courts should enforce a termination provision where, when read as a whole and in light of a contract’s surrounding circumstances, it reflects an intention to comply with the ESA’s minimum standards. We have written previously on the challenges of enforcing termination of employment provisions to the exclusion of common law reasonable notice entitlements here.

Below we cover why this case matters, the applicable interpretative framework and practical drafting lessons for employers.

Why This Case Matters

After a period of inconsistent jurisprudence, Baker clarifies the proper approach for evaluating the enforceability of termination provisions in an employment contract. Following the Baker decision, employers in Ontario should review and, if necessary, update the termination provisions in their employment agreements to ensure the provisions and the contract as a whole demonstrate an intention to comply with the ESA.

The Proper Interpretative Framework

Ontario courts have typically favoured interpretations of employment agreements that protect employees, reflecting the presumption of unequal bargaining power between employer and employee. But employment agreements are still contracts, and modern contractual interpretation principles apply. In Baker, the Court of Appeal explained that the proper approach is to identify the parties’ objective intentions from the wording of the contract as a whole, understood in light of the relevant surrounding circumstances (paras. 4-5).

“At any time and for any reason”

The decision considered two termination of employment without cause provisions (“Without Cause Provisions”)¹ from separate appeals that used similar language, but the lower courts reached opposite conclusions on enforceability. 

The employees contended that the ESA restricts the times and reasons for which an employer may terminate employment. The Court held, however, that contractual interpretation requires an inquiry into the parties’ objective intentions, based on the contract as a whole and the surrounding circumstances (paras. 17, 37 and 40). The Court concluded that both Without Cause Provisions reflected an objective intention to terminate employment in a manner consistent with the ESA. Repeated affirmations of ESA minimum entitlements in the provisions and elsewhere in the agreements, together with the implausibility that either party intended to offend the ESA, showed that the problematic language asserted by the employees, namely the inclusion of “at any time”, meant a without-cause termination could be valid and legally effective regardless of when it occurred, not that it could override statutory protections (paras. 41-47 and 55).

The Court placed particular weight on a separate clause in Baker’s contract that stated that the employer would “at all times, comply with the Employment Standards Act” and that, if any term was inconsistent with the ESA’s minimum requirements, the ESA would prevail and the employee would receive all entitlements prescribed by the ESA (paras. 45-46). This is a critical drafting safeguard for employers.

The Court separately analyzed the words “for any reason” in Li’s contract and found them enforceable in context. They simply meant that the employer need not provide a reason for a without-cause termination; they do not authorize the employer to disregard statutory prohibitions or deprive the employee of ESA minimum entitlements (paras. 57-63).

“Cause” vs. ESA Wilful Misconduct

The Court also reviewed Van Dolder’s submission that the termination of employment with cause provision (“With Cause Provision”)² in Baker’s contract was compliant with the ESA despite the motion judge’s finding that “regular employees” would not understand the difference between common law termination for “cause” and the narrower, termination for wilful misconduct pursuant to the ESA, which risked such employees assuming they would have no entitlement upon termination with cause. At common law, “just cause” refers to employee misconduct “incompatible with the fundamental terms of the employment relationship” (para. 66), whereas the ESA’s “wilful misconduct” standard requires a higher threshold, where it has been characterized as the employee doing something “deliberately, knowing they are doing something wrong” and as being “bad on purpose” (para. 68). In practical terms, an employee may be terminated for common law just cause and still be entitled to ESA notice, benefits continuation, and severance pay unless the misconduct meets the narrower ESA “wilful misconduct” standard.

The Court found that the With Cause Provision was consistent with the ESA because, unlike in Dufault v. The Corporation of the Township of Ignace, (2024 ONSC 1029) (which we previously wrote about here), for example, the contract expressly provided that even if employment was terminated under the With Cause Provision, the employee would still be provided with the minimum compensation and entitlements required by the ESA (i.e., where the employee’s misconduct amounted to “just cause” under the contract but did not meet the high threshold for “wilful misconduct” under the ESA, they would still receive their ESA minimum entitlements). The savings clause in Baker’s contract was a critical factor in this regard, as it was found to bring the With Cause Provision into compliance with the ESA. The Court also rejected the suggestion that employers are obligated to explain the legal differences between common law “cause” and ESA “wilful misconduct” in the contract as this is unlikely to enhance the understanding of a “regular employee” (paras. 73-80).

Practical Drafting Lessons for Employers

1. Include a standalone clause stating that the ESA’s minimum standards prevail over any inconsistent contractual term. 
2. Repeat clear affirmations of ESA compliance throughout the termination provisions, including references to statutory minimum notice, termination pay, severance, benefits continuation and other entitlements. 
3. For with-cause provisions, expressly preserve ESA minimum entitlements even if the contract defines “cause” more broadly than the ESA’s wilful misconduct standard. An employee terminated for contractual cause must still receive ESA minimums unless the conduct meets the narrower wilful misconduct threshold.
4. Ensure that every termination provision complies with the ESA. Because Waksdale v. Swegon North America Inc. (2020 ONCA 391) (which we previously wrote about here) remains good law, an invalid provision can render all termination provisions in the contract unenforceable.

These cases do not create a licence to draft loosely. The result turned on the wording of the agreements read as a whole and their repeated commitments to comply with the ESA. Employers should review and, if necessary, update their employment agreements and continue to monitor legislative and jurisprudential developments affecting termination provisions.

Contact Mintz Canadian Employment Practice if you require any guidance or assistance in reviewing or drafting employment agreements and contact Mintz Canadian Litigation Practice for any employment-related litigation.

^1. Without Cause Provision #1: 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.

Without Cause Provision #2: 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.

^2. With Cause Provision: 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: (a) poor performance, after having been notified in writing of the required standard; (b) dishonesty relevant to your employment (such as misleading statements, falsifying documents and misrepresenting your qualifications for the position you were hired for); (c) theft, misappropriation or improper use of the company’s property; (d) violent or harassing conduct towards other employees or customers; (e) intentional or grossly negligent disclosure of privileged or confidential information about the company; (f) Any conduct which would constitute just cause under the common law or statute.

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