On August 6, 2026 the Ontario Court of Appeal (“ONCA”) released its decision in Baker v. Van Dolder’s Home Team Inc. (“Baker”), which was heard in conjunction with the companion case of Li v. Wayfair Canada (“Li”). The decision finally brings some much-needed practical reasoning to the interpretation of termination clauses, and also provides welcome relief to employers. Over the past several years the general trend of Ontario caselaw had resulted in a sense that drafting an enforceable termination clause was a task so elusive that many (particularly employee side counsel) determined it to be unattainable. However, the Baker appeal signals a shift in the way the enforceability of termination clauses should be analysed, as it moves away from interpretations of language and clauses that are too focussed on technicality and words in insolation, rather than the objective intention of the parties.
Termination Language at Issue
The two lower court decisions in Baker and Li had each reached opposite conclusions on extremely similar language. In Baker, the motion judge found the language in the without-cause termination clause, which provided that the employer could terminate employment “at any time”, rendered it unenforceable. However, in Li a different motion judge upheld a without-cause termination clause which stated that the employer could terminate employment “at any time and for any reason”.
The basic argument against the enforceability of the clauses was that the language which permitted termination “at any time” or “for any reason” did not comply with the minimum standards required under the Ontario Employment Standards Act, 2000 (the “ESA”) because under the ESA there are certain times e.g. at the conclusion of a protected leave (unless employment is terminated for reasons solely unrelated to the leave), and certain reasons e.g. as a reprisal for trying to enforce a statutory right, when an employer is prohibited from terminating employment. Accordingly, language which arguably permitted terminations in these circumstances is contrary to the ESA and therefore invalid, thereby rendering the clauses unenforceable.
A further issue on the appeal looked at whether the termination with cause provision was contrary to the ESA. The with cause provision stated that the employer could terminate 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”. The argument against the enforceability of this language was that it falls below the minimum standard under the ESA required for a termination without notice or pay, which is where the employee has been “guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer” (“Wilful Misconduct”). Wilful Misconduct under the ESA is a higher threshold than simply “just cause”.
The Court’s Analysis
The ONCA took a broader approach to interpretation stating that a termination clause must be read in the context of the whole agreement and not in isolation. Contractual interpretation should strive to determine the objective intention of the parties at the time the contract was entered into, and not try to find ambiguity where none reasonably exists. In context, the ONCA held that the language at issue was not inconsistent with the ESA, as the other language in the contract clearly reflected an intention to comply with the minimum standards under the ESA.
Further, the ONCA held that the termination with cause provision did not violate the ESA, and was therefore, enforceable. Specifically, even if terminated for cause, the clause provided that the employee would still receive their minimum ESA entitlements. Accordingly, the language complied with the ESA.
Key Takeaways
- Termination clauses are not invalid simply because they include the phrases: “at any time” or “for any reason”.
- The interpretation of employment agreements should consider the objective intention of the parties looking at the language in context and as a whole.
- Provisions which explicitly state an intention to comply with the ESA are important and should be included in employment agreements, as this can help reach a finding of enforceability.
- Termination “for cause” language will not render the clause unenforceable if it provides that the employee will receive their minimum ESA entitlements on such termination.
There is no doubt that this is an employer-favourable development in the law in Ontario relating to termination clauses, and hopefully it signals a move towards a more balanced approach to the interpretation of employment agreements.