Stability at last

Exclusive to Canadian HR Reporter from Rudner Law.

In employment law, the termination provision in a contract is a high-stakes clause. If written correctly, it can limit what an employer must pay an employee upon dismissal to the bare minimums required by the Employment Standards Act, 2000 (ESA), roughly 34 weeks at most.

However, if the clause is found to be legally flawed, the employer might instead owe common law notice, which can reach as high as 30 months of pay.

Because the financial stakes are so high, courts have spent years debating exactly which words make these clauses enforceable. For a long time, legal experts relied on a few classic cases like Waksdale to guide them. But in early 2024, a new case called Dufault threw the industry into a tailspin.

In Dufault, a judge ruled that using the common phrase "at any time and for any reason" made a termination clause unenforceable. The reasoning was that this phrase could technically allow an employer to fire someone even for illegal reasons, such as taking a pregnancy/parental leave or exercising rights under the ESA. For a while, thousands of employment contracts across Ontario were suddenly at risk of being considered worthless.

Following this, two conflicting decisions emerged: Baker v Van Dolder’s Home Team (which followed the Dufault logic) and Li v Wayfair Canada (which did not). Both were appealed to the Court of Appeal for Ontario, the province's highest court, to settle the matter once and for all.

Last week, the court released its combined decision, finally providing the clarity that employers and employees have been waiting for.

Court’s analysis: common sense prevails

The Court of Appeal ruled that phrases like "at any time" and "for any reason" do not automatically break the law. Instead, they found that these terms are consistent with the ESA, meaning the termination clauses in both the Baker and Li cases were valid and enforceable.

The most interesting part of the ruling is the focus on the intent of the parties. The court looked at the contracts as a whole and concluded that neither the employer nor the employee could have reasonably intended for the contract to bypass the law. If a contract says it intends to follow the ESA, the court will now likely interpret ambiguous phrases in a way that respects that intention.

In the Baker case, the court found it was illogical to assume the employee had given up his statutory protections just because he agreed to be dismissed "at any time." Essentially, the court said that "at any time" simply means the termination is legally effective whenever it happens, provided it doesn't violate specific legal prohibitions (like firing someone for being on medical leave).

The court also noted that Wayfair’s contract with Li was peppered with language stating they would pay "as required by the ESA." This reinforced the idea that the parties intended to follow the rules, and the phrase "for any reason" should be read as "for any legal reason," rather than a license to break the law.

Why this matters: A new standard of fairness

This decision is a victory for common sense. For employers, it means they don't necessarily have to rewrite every single contract because of a few standard words. For employees, it clarifies that their statutory rights remain protected even if their contract uses broad language.

However, it also signals a shift in how judges look at contracts. In the past, if a single clause was technically broken, the whole termination provision would be unenforceable. Now, the court is looking at the whole document and the intention of the people who signed it.

While this adds a layer of subjectivity, it ultimately prevents technicalities from overriding what everyone originally agreed to. For now, the legal canon has a new, stabilizing pillar, and the employment law world can finally breathe a sigh of relief.

Geoffrey Lowe is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].