Court of Appeal hears appeals on termination provisions – again
Exclusive to Canadian HR Reporter from Rudner Law.
You may have noticed a few Wednesdays ago that your employment lawyer was more difficult to reach than normal. If they weren’t in a hearing or a discovery, they were probably watching the livestream of the Court of Appeal for Ontario’s hearing in Baker v Van Dolder’s Home Team and Li v Wayfair Canada, arguably the two biggest employment law cases since the court’s decision in Waksdale v Swegon North America.
Both Baker and Li address what language would make a termination provision unenforceable. Depending on the outcome of either case, a number of termination provisions may not limit the employer’s obligations to an employee on dismissal.
The significance of these cases, and the high anticipation for the court's decisions, can be traced back to Bardal v the Globe and Mail and the decisions that followed it.
Reasonable notice and termination provisions
Bardal, a 1960 decision of the High Court of Ontario, established that an employer must provide reasonable notice of termination and that the length of this notice is based on an assessment of factors including the employee's age, length of service, and character of employment.
After Bardal, employers realized that an employee's entitlement to reasonable notice could be limited by including a term in the employment agreement limiting these on dismissal.
In 1992, the Supreme Court of Canada in Machtinger v HOJ Industries confirmed that an employer could not contract out of the governing employment statute by having the employee agree to accept less than their statutory minimum entitlements on termination. Crucially, the court found that any attempt to contract for less than the statutory minimum would negate the enforceability of the termination provision.
Since Machtinger, the question of what language will be enforceable has been a live issue. The Court of Appeal for Ontario provided clarification in 2017, with Wood v Fred Deeley Imports and in 2020, with Waksdale.
It is difficult to overstate how dramatic an impact Waksdale had on the employment law landscape. Nearly every employment agreement before 2020 included language stating that the employer could terminate an employee's employment for cause without notice or pay in lieu of notice.
In Waksdale, the court found that as this breached the Employment Standards Act, 2000 (ESA) and a termination provision (with and without cause) had to be read and applied as a whole. This meant that if one part of the provision (with cause) breached the ESA, then the entire clause would be struck: even if the without cause portion was otherwise enforceable.
After the sea change brought about by Waksdale, it seemed like things were settled, until in 2024, it became apparent that they weren’t.
Dufault and the aftermath
In early 2024, the Ontario Superior Court of Justice in Dufault v the Corporation of the Township of Ignace found the following apparently innocuous and otherwise standard termination provision unenforceable:
“4.02 The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows.”
Despite this, the court found that the “at its sole discretion” and “at any time” language breached the ESA by potentially allowing an employer to dismiss an employee during or after a protected leave or when making a complaint under the statute.
Dufault was upheld by the Court of Appeal in 2024, but the court did not address the without cause language. In the absence of any guidance, it appeared that this language would make a termination provision unenforceable. Baker followed in February 2025, with the Superior Court relying on Dufault to find a termination provision unenforceable due to the use of the “at any time” language.
For a brief period, it seemed that this was the state of the law: “sole discretion” or “at any time” would make an employment agreement unenforceable. Then, a few months later, the Superior Court released its decision in Li. Here, the court found the termination provision to be enforceable, despite the “at any time” language.
In Li, the court relied on appellate case law that an employment agreement should be read as a whole, and would be enforceable as long as it complied with the terms of the applicable employment legislation. The court indicated that the provision in Li was distinct from the provision in Baker and that the two decisions did not conflict.
What happened on Wednesday?
The Court of Appeal heard both cases over an all-day hearing on Wednesday, March 25, 2026, and took its decision in reserve, meaning that it would not be delivered on the day of the hearing. The focus of the parties’ submissions was on the use of the “at any time” language, suggesting that any decision in both cases will be based on whether this language makes a termination provision unenforceable.
Why does this matter?
Every employment statute in Canada outlines the employer’s statutory obligation to an employee on dismissal. Ontario’s is the most generous, providing notice or pay in lieu (maximum eight weeks) and, for qualifying employees, severance pay (maximum 26 weeks), totaling a maximum of 34 weeks of pay on dismissal.
The common law can provide for significantly longer notice periods, sometimes up to 30 months, though typically capped at 24 months inclusive of statutory entitlement.
The difference between the two is significant: in Ontario, the statutory maximum is 34 weeks versus the common law “cap” of 24 months. Limiting an employee's entitlement to the statutory minimum can mean significant savings for the employer. But to do so, the language in the termination provision must be consistent with the state of the law. Until the court provides its clarification, any provision with the “at any time” is vulnerable to challenge.
If Baker is upheld and the presence of “at any time” language in a termination provision will render it unenforceable, the impact on employment law may be at a similar level to Waksdale in terms of making termination provisions unenforceable.
‘At any time’: enforceable and unenforceable
A company’s employees are typically its biggest expense. A well-drafted, legally compliant termination provision can assist a company in reducing its expenses by making it less costly to dismiss its employees when necessary. The reverse is also the case: a termination provision that is not legally compliant exposes the company to liability, rather than limiting it; this can also lead to legal fees in addressing any subsequent complaint.
Presently, a provision that permits the employer to dismiss an employee “at any time” is kind of a Schrodinger’s provision: it is enforceable and unenforceable until reviewed. In Baker and Li, the court has the opportunity to provide this answer once and for all (or at least until a potential Supreme Court appeal), permitting companies to know for certain whether their termination provisions are enforceable or not.
Geoffrey Lowe is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
