Ontario termination clauses after Baker v. Van Dolder's

A termination clause decides what an employer owes when it dismisses an employee without cause, and in Ontario it is one of the most litigated provisions in any employment contract. Since Waksdale in 2020, employees have won case after case by attacking the wording of these clauses. From 2024, the phrase "at any time" became a favourite target. On August 6, 2026, the Court of Appeal for Ontario closed that line of attack in Baker v. Van Dolder's Home Team Inc., 2026 ONCA 568, and upheld both clauses in dispute. Here is what the court decided, which challenges still work, and how employers should draft after the ruling.

What a termination clause does in an Ontario employment contract

Without an enforceable termination clause, a non-unionized employee dismissed without cause is entitled to common-law reasonable notice. Courts assess it under the Bardal factors: age, length of service, character of the position and the availability of similar work. For a senior employee that can mean many months of salary. A valid clause replaces that open-ended exposure with a defined entitlement, often the statutory minimum and nothing more. Ontario law allows the trade, because the common-law presumption of reasonable notice gives way to clear contractual wording that respects the ESA floor. That is why an employee who wants the larger number goes after the clause itself.

Most contracts contain a without-cause provision for ordinary dismissals and a with-cause provision for misconduct. Courts read both together, along with any clause stating that the ESA prevails. All of this assumes the worker is an employee, so check how Canadian courts separate employees from contractors under the Sagaz test before relying on any notice term. Calling an employee a contractor does not take them outside the ESA, and the notice term in a contractor agreement rarely survives the reclassification.

Legal framework: the ESA, Machtinger and Waksdale

The governing statute is the Employment Standards Act, 2000, S.O. 2000, c. 41, and section 5(1) bars contracting out of it. Once an employee has three months of service, section 57 sets minimum written notice on a sliding scale, from one week in the first year to eight weeks after eight years. Pay in lieu must come with continued benefit plan contributions for the same period. Where the payroll or closure conditions of section 64 are met, employees with five years of service also receive severance pay under section 65: one week per year, up to 26 weeks. The Ontario government's guide to termination of employment under the ESA sets out the tables and exemptions.

In Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986, the Supreme Court of Canada held that a clause offering less than the ESA minimum is void, and the employee then recovers full common-law notice. Waksdale v. Swegon North America Inc., 2020 ONCA 391, added that termination provisions are read as a whole: one non-compliant provision, usually the with-cause clause, voids the without-cause clause as well, even if the employer never relied on it. Under Ontario Regulation 288/01, misconduct removes statutory notice and severance only when it amounts to wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned, a higher bar than common-law just cause. Clauses that ignored the gap fell in Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451, De Castro v. Arista Homes Limited, 2025 ONCA 260, and Dufault v. Township of Ignace, 2024 ONCA 915, where the Court of Appeal expressly left open the trial judge's view that "at any time" breached the ESA.

What Baker v. Van Dolder's decided

Frederick Baker, controller and head of finance at Van Dolder's Home Team Inc., was dismissed without cause in March 2023 with less than three years of service, which gave him two weeks under the ESA. He refused four weeks offered against a release, sued, and was paid the statutory two weeks. His without-cause provision allowed termination "at any time" on payment of the ESA minimums. His with-cause provision defined cause broadly but carved out the ESA minimums, and a separate Minimum Standards clause promised compliance with the ESA at all times. The motion judge (2025 ONSC 952) struck down both provisions, reading "at any time" as covering dismissals barred by sections 53 and 74. In Li v. Wayfair Canada ULC, 2025 ONSC 2959, another judge upheld nearly identical wording.

Writing for a unanimous panel that heard both cases together, Justice Monahan used the appeals to clarify the law, since near-identical clauses had produced opposite results. The court allowed the employer's appeal, dismissed Mr. Li's, and upheld every provision in issue. Judges must look for the parties' objective intention in the contract as a whole instead of applying a "magic words" test. Read in context, "at any time" means a without-cause dismissal takes effect whenever it occurs, and "for any reason" means no reason has to be given. Neither phrase licenses a dismissal the ESA forbids, and a clause is ambiguous only if it supports two reasonable readings.

The with-cause ruling reaches further. A cause definition wider than the statutory standard survives if the clause expressly preserves the ESA minimums, because the employee still receives them after a dismissal for contractual cause. Employers may incorporate ESA entitlements by reference without explaining the two standards. If statutory minimums are a poor substitute for common-law notice, the court said, the fix belongs to the legislature. The test is no longer which words a clause contains, but whether the contract, read as a whole, guarantees the statutory minimums.

Where termination clauses still fail after Baker

Baker closes two arguments and leaves the core rule intact: a clause that removes ESA entitlements for conduct short of wilful misconduct is still void. The employer's request for a five-judge panel to reconsider Waksdale was refused, so a single defective provision can still sink the rest. Clauses also fail when a fixed formula leaves out benefit continuation or statutory severance pay, when the wording is genuinely ambiguous, or when the contract was signed after the start date without fresh consideration. On an asset sale, section 9 of the ESA carries the employee's service over to a buyer that keeps them on. Any new termination clause must therefore count the full period of employment, and a business purchase agreement that addresses the transfer of employees should settle who bears that liability before closing.

The ruling also stops at the provincial border. Federally regulated employers such as banks, airlines and interprovincial carriers answer to the Canada Labour Code. Its Part III has its own notice and severance rules, and section 240 lets eligible non-managerial employees with twelve months of service file an unjust dismissal complaint even when those rules were followed. In Quebec, article 2092 of the Civil Code of Québec stops an employee from renouncing compensation for insufficient notice. Courts in other common-law provinces may find Baker persuasive without being bound by it, and in Ontario it stands unless the Supreme Court of Canada revisits the question.

Drafting an Employment Agreement on Captain.Legal

The Employment Agreement template for Canada starts with the province of employment, because that choice drives the statutory notice periods, the severance rules and whether a non-compete is allowed at all. The questionnaire then covers the parties, job title, reporting line and work location, followed by salary, pay frequency and any bonus or commission. Vacation, benefits and probation come next, with the statutory floor of the chosen province applied so that a probation clause cannot undercut notice once the employee qualifies for it. The termination section limits the employee to ESA entitlements where the law allows. Its "for cause" wording is built so that no sub-clause falls below the statutory minimum, the point Baker turned on. Confidentiality, non-solicitation and intellectual-property terms complete the contract, which downloads in Word and PDF. Send it with the offer, so the termination clause is agreed before the first day of work.

Common mistakes Ontario employers still make

The first is reading Baker as permission to relax: the court upheld a broad cause definition because it carried an express ESA carve-out, and a contract without that carve-out is as exposed as it was before August 6, 2026. The second is recycling an old with-cause clause that promises "no notice or pay of any kind," which under Waksdale drags the whole termination section down. In practice, that is where most older contracts break. The third is a flat entitlement, such as four weeks' pay, that complies at hiring but falls below the statutory scale once the employee passes five years of service or qualifies for severance.

The last two happen on the day of dismissal. Van Dolder paid the statutory two weeks without a release and offered more only in exchange for one, the correct sequence: ESA termination pay cannot be made conditional on signing a release. A termination letter template built around ESA entitlements should list the statutory amounts, the payment date, the benefit end date and any enhanced offer as separate items. Finally, the clause governs money, not motive: a dismissal linked to a protected leave or an ESA complaint remains a reprisal under section 74, whatever the contract says, and can lead to reinstatement or compensation orders.

Frequently asked questions