Enforceability of Termination Clauses in Ontario: What’s Changed in 2025?

Recent changes in Ontario law have made the enforceability of termination clauses much stricter and can, in turn, leave employers with a hefty price to pay if the contract is not drafted well. Courts continue to override common termination provisions for non-compliance with the Employment Standards Act, 2000 (ESA), emphasizing that even slight technical defects can void entire clauses. This blog outlines critical updates employers should address to avoid liability and to stay compliant.

1. Restrictions on ‘At Any Time’ Termination

The following types of termination clauses are now likely to be considered unenforceable: clauses that allow employers to terminate an employee at any time. Recent cases reveal two primary issues:

• ESA Violations: The ESA has certain limitations on termination, such as retaliation for exercising ESA rights, pregnancy or family or medical leave. The use of language that is inconsistent with these protections is prohibited.
• Judicial Precedents: In Dufault v. The Township of Ignace (2024), a clause allowing termination “at any time” was invalidated because it ignored ESA protections. Similarly, Baker v. Van Dolder’s Home Team Inc. (2025) held that “at any time” provision alone violates the ESA, and therefore renders the entire termination provision unenforceable.

Employer Takeaways

• The language “at any time” is best avoided in termination provisions.

2. “Just Cause” Termination Must Align Strictly with ESA Standards

The ESA permits termination without notice or pay only for “wilful misconduct, disobedience, or wilful neglect of duty”—a narrower standard than common law “just cause.” Clauses that conflate these standards risk invalidation:

• Case Example: In Baker (2025), a clause listing “poor performance” or “breach of company policy” as grounds for cause termination was struck down because it expanded beyond the ESA’s wilful misconduct threshold.
• Severability Issues: Courts often refuse to sever invalid “for cause” provisions, voiding the entire termination clause. This follows the precedent set in Waksdale v.
• Swegon North America (2020), where even unrelated defects in a termination clause led to its unenforceability.

Contract Drafting Solutions

• Define “cause” explicitly as “wilful misconduct” meeting ESA criteria.
• Avoid vague terms like “breach of policy” or “unsatisfactory performance” in cause-related provisions.

3. The Consequences of Breaching Contractual Termination Promises

Employers who fail to provide all contractual termination entitlements risk repudiating the employment agreement, voiding the termination clause entirely. Key lessons from Timmins v. Artisan Cells (2025):

• Case Summary: The employer promised 3 months’ notice in the contract but only paid ESA minimums (1 week) upon termination, demanding a release for the balance. The court ruled this conduct repudiated the contract, awarding the employee 9 months’ common law notice.
• Legal Principle: Withholding enhanced entitlements (e.g., top-ups beyond ESA minimums) unless explicitly conditioned on a release in the contract constitutes a breach of good faith.

Employer Best Practices

• Pay all contractual termination entitlements upfront without requiring a release, unless the clause explicitly ties additional payments to signing one.
• Include clear language distinguishing ESA minimums from enhanced benefits (e.g., “The Company will provide ESA entitlements plus an additional 4 weeks’ pay, contingent on a signed release”).

4. Additional Risks and Proactive Measures

Broad statements like “this clause complies with the ESA” are insufficient to address specific defects in termination clauses. In Baker, a saving clause failed to rectify the “at any time” language.

Exercise Regular Contract Reviews

• Update templates annually to reflect evolving case law.
• Conduct audits for:
  Ambiguous termination timelines.
  Overly broad cause definitions.
  Conditional payment structures that are not tied to a release.

Unenforceable clauses expose employers to common law notice periods, which can reach 24 months for long-term employees—far exceeding ESA minimums.

Takeaway

Ontario employers should treat termination clauses as high-risk legal instruments. Recent rulings demonstrate that courts will aggressively invalidate non-compliant provisions, prioritizing employee protections under the ESA. Proactive steps could include:

• Eliminating “at any time” language.
• Aligning cause definitions with ESA wilful misconduct standards.
• Honouring all contractual termination entitlements unconditionally.
• Engaging employment counsel for contract reviews.

The cost of non-compliance with Ontario’s employment laws can be substantial, often exceeding hundreds of thousands of dollars in damages, as courts consistently enforce strict adherence to the Employment Standards Act, 2000 (“ESA”). Employers should prioritize investing in legally sound agreements to mitigate these risks.

If you need assistance drafting, reviewing, or updating employment contracts, we encourage you to contact Toronto employment lawyers, Sultan Lawyers, online or by telephone at 416-214-5111. We offer no-cost introductory calls with our legal team to provide guidance on workplace legal matters.