Divergent Ontario Court Decisions Create Uncertainty Around Employment Termination Provision Enforceability
Termination provisions are the most frequently disputed clause within any employment contract. Employers use these provisions to limit payment obligations and create certainty. It is quite common for employers to tie their obligations in this regard to the minimum termination requirements set out within the Ontario Employment Standards Act, 2000 (“ESA”).
Where a termination provision is found to be unlawful, however, the court created concept of “common law reasonable notice” will apply in its place. Common law reasonable notice requires assessment of each individual worker’s future employment prospects and generally results in a greater severance entitlement than that mandated by the ESA.
The stakes can be high when contractual termination provisions are the subject of dispute. For example, take the same 65-year-old senior managerial employee with 20 years of service at a small company. Under the ESA, the employee would be entitled to receive 8 weeks notice of termination (or pay in lieu thereof). At common law, however, the same employee could have a severance entitlement in the range of 20-24 months (subject to their ability to find new work and offset their losses).
With this context in mind, we note that two streams of case law have recently emerged and diverged over whether words within a termination provision allowing an employer to terminate “at any time” may render the provision unlawful (with the common law applying as a result).
We are aware of five recent decisions which have considered this language. Three have found that a termination provision allowing an employer to end employment “at any time” violates the ESA, while two other cases reached the opposite conclusion.
The Two Streams of Judicial Thought
I: “At Any Time” Renders Termination Provision Unlawful
Dufault v. the Corporation of the Township of Ignace 2024 ONSC 1029: the court found that a termination provision that preserved the employer’s right to terminate “at any time” and “in its sole discretion” violated the requirements of the ESA. Specifically, the court opined that employers do not enjoy an unfettered right to end the employment relationship. Rather, there are circumstances that curtail this ability – such as where the employee is on a job-protected leave or if the dismissal is an act of reprisal.
When the decision was appealed, the Court of Appeal opted not to address the “at any time” argument, finding it unnecessary to do so as the termination provision in question was found on other grounds to be unenforceable.
Baker v. Van Dolder’s Home Team Inc. 2025 ONSC 952: the court found that it was bound to follow the conclusion reached in Dufault, and therefore determined inclusion of the words “at any time” within the employment contract was sufficient to render the provision unlawful, with the common law applying in its place.
The Baker decision has been appealed to the Court of Appeal. The Court is also allowing an intervenor, the Ontario Chamber of Commerce, to appear and make submissions. This may indicate that some clarity is forthcoming.
Chan v. NYX Capital Corp. 2025 ONSC 4561: the court referred back to Dufault and Baker and found the termination provision in question (which permitted dismissal “at any time and for any reason at its discretion”) to be unlawful. In reaching this conclusion, the court likewise noted that employers lack an absolute right to dismiss an employee, such as in the case of a reprisal.
II: “At Any Time” Does Not Render Termination Provision Unlawful
Li v. Wayfair Canada ULC., 2025 ONSC 2959: the court found that a termination provision allowing the employer to terminate employment “at any time” was not rendered unenforceable. The court drew a distinction between the circumstances before it and those in Dufault – noting that, unlike in Dufault, there were no flaws related to the contract’s definition of “cause”. That said, the court failed to explain how use of the words “at any time” where acceptable here, but not in Dufault (given considerations regarding unfettered rights and reprisal would nonetheless apply).
Jones v. Strides Toronto, 2025 ONSC 2482: the court found that the Dufault decision did not stand for the proposition that the words “at any time” divorced from “sole discretion” were improper in an employment contract. The court, however, neglected to reconcile this reasoning with the opposite conclusion reached in Baker – which held that the phrase “at any time” was sufficient in isolation to render the termination provision unlawful.
Takeaways for Ontario Employers and Employees
The above decisions highlight an inconsistency in approach which creates uncertainty for both employers and employees and may be a catalyst for avoidable litigation.
As noted above, however, there may be hope on the horizon, with Baker set to be heard by the Court of Appeal for Ontario. Ideally, the Court will take this opportunity to reconcile the caselaw and provide much needed certainty.
In the interim, employers are best served to work with employment law counsel to review their employment contracts and make revisions, as needed, to ensure their intended aims are being furthered by the language used therein (thus limiting risk and unintended liability).
Dismissed employees, on the other hand, may wish to have their severance package reviewed by an employment lawyer prior to accepting any proposed offer. The law in this area remains in flux, and it is advisable to have a clear understanding of your rights and entitlements prior to making any decision in this regard.
Vey Willetts LLP is an Ottawa-based employment law boutique that provides timely and cost-effective legal advice to employers and employees across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.