Are notice of termination clauses in employment contracts valid?

If an employee has a written employment contract, that contract likely contains provisions on how much notice of termination, or pay in lieu of notice of termination (often referred to as severance pay), that the employer must provide. Generally, employers are permitted to have such provisions in employment contracts, but there are some limits. 

In brief, in Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986, the Supreme Court of Canada held that notice of termination clauses must be compliant with the relevant employment standards legislation’s minimum requirements. The top court started by holding that there is a presumption in employment contracts that employers must give their employees reasonable notice of termination, or pay in lieu of notice. The court then held that employment standards legislation does not rebut that presumption, but parties can include contractual terms which would.  

The Supreme Court added that employers can limit the notice of termination with express terms in an employment agreement. However, the top court continued by stating that if the contractual notice provisions are less than the relevant employment standards legislation, those contractual notice provisions are void for violating public policy.  

The Supreme Court in Machtinger also ruled that parties could incorporate employment standards legislation notice provisions into the contract by referring to the relevant legislation (called incorporation by reference, or referentially incorporating).  

Incorporating employment standards legislation in termination clauses 

The BC Court of Appeal recently affirmed referentially incorporating employment standards legislation minimums into employment contracts in Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222 (leave to appeal refused). The headnote for the decision says, “On a proper interpretation of the termination clause, there is no ambiguity in the parties’ intentions to displace common law notice with the statutory requirements of the [Canada Labour Code]. The clause is sufficiently clear to rebut the presumption of common law reasonable notice. There is no basis on which to find the termination clause unenforceable as statutorily noncompliant as it does not permit the employer to contract out of any statutory obligations with respect to the payment of benefits during the notice period.” 

In Howard v. Benson Group, 2016 ONCA 256, the Ontario Court of Appeal wrote, “Of course, parties to a fixed-term employment contract can specifically provide for early termination and, as in Bowes, specify a fixed term of notice or payment in lieu.”  

Further, and more recently, in Bertsch v. Datastealth, 2025 ONCA 379, the court upheld incorporation by reference in a clause which read,  

“If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the Ontario Employment Standards Act, 2000 and its Regulations, as may be amended from time to time (the “ESA”), including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.” 

In doing so, the court held, “In any event, the issue is not whether an ordinary person might arrive at an incorrect interpretation of the termination provisions of the employment agreement, but how the agreement can be reasonably interpreted.” 

Vague language can breach employment standards 

However, in addition to providing insufficient notice, or pay in lieu of notice, of termination, there are other ways courts have found notice of termination provisions violate employment standards legislation.  

In Howard v. Benson Group, 2015 ONSC 2638, the trial court struck the following clause as vague:  

“Employment may be terminated at any time by the Employer [the defendant] and any amounts paid to the Employee [the plaintiff] shall be in accordance with the Employment Standards Act of Ontario.” 

The issue was the use of “at any time.” As mentioned above, this matter was appealed. The Ontario Court of Appeal was not asked to determine whether the clause was vague and addressed (a) whether the employee was entitled to common law notice or payment for the balance of the contract, and (b) whether the employee had a duty to mitigate their losses by seeking alternate employment during the currency of the fixed-term contract. 

In Waksdale v. Swegan North America Inc., 2020 ONCA 391, the Ontario Court of Appeal held that if any notice provisions violated employment standards legislation, then all the termination provisions were invalid. In that case, the definition of cause in an employment agreement was more expansive than employment standards legislation, which meant an employee could be fired under the contract for cause (and hence no notice) contrary to employment standard legislation. The without-cause notice of termination clause did not violate employment standards legislation. The employee was dismissed without cause and successfully argued contractual termination provisions were invalid because the with-cause terms violated employment standards legislation.  

This decision was followed in Dufault v. Ignace (Township), 2024 ONCA 915, (leave to appeal denied). The lower court (2024 ONSC 1029) also held that an employment contract’s without-cause termination provisions were invalid because they limited compensation to base salary excluding vacation pay, sick pay, leave for unpaid overtime, and other forms of regular wages - and, more significantly, they included language that the employer could terminate at any time and at its sole discretion. Those issues were not addressed on appeal. 

Compliance is key for termination provisions 

In summary, employment contracts can include specified notice of termination provisions so long as those provisions do not violate employment standards legislation. Courts have permitted parties to incorporate employment standards legislation minimums into employment contracts, although there is some concern about ambiguity and vagueness (i.e. the use of the term “at any time”), and courts will strike entire termination provisions if any portion of the termination provision violates employment standards legislation. The bottom line: employers can contractually limit notice obligations, but only within the framework of employment standards legislation. 

Ken Armstrong, KC, is an associate counsel at Icon Law Group in Vancouver, focusing on employment law, insurance claims, and general commercial litigation.