A Common-Sense Approach: Ontario Court Of Appeal Brings Clarity To The Enforcement Of Employment Contract Terminations

To listen to an audio recording of this article, click here.

On August 6, 2026, the Ontario Court of Appeal (the “Court”) released its decision in Baker v. Van Dolder’s Home Team Inc., 2026 ONCA 568, which provides much-needed clarity to the enforceability of employment agreement termination provisions in Ontario. The Court dealt with the appeal of Baker (2025 ONSC 952)together with a similar case, Li v. Wayfair Canada ULC, 2025 ONSC 2959, resolving an impasse as the trial judges had reached opposite conclusions in their respective interpretation of similar termination clauses.

In its approach to resolving the impasse, the Court rejected the trend of what has become an increasingly technical approach to interpreting employment agreements and determined that these termination provisions should be assessed using modern principles of contractual interpretation. In doing so, the Court, in both cases, affirmed the enforceability of the termination provisions as having properly limited an employee’s entitlements upon termination to those set out in the Employment Standards Act, 2000 (the “ESA”).

Over the past several years, Ontario courts have invalidated termination provisions based on what employees have characterized as drafting ambiguities which, the theory goes, were not known to the parties when the contract was completed or, alternatively, were deemed non-compliant based on hypothetical inconsistencies with the ESA. Baker could signal a marked step toward a more contextual and common-sense approach by Ontario judges, which focuses more on the objective intentions of the parties and the employment agreement as a whole rather than isolating certain words or phrases out of context with the overall agreed-upon structure. It may very well stop a judicial preference favouring employees’ claims of ambiguity over language that, in most cases, was presented to employees and negotiated between the parties before employment began.

Background

The two appeals involved the enforceability of termination provisions that limited employees to their minimum entitlements under the ESA. In both cases, the employees argued that the relevant termination provisions were unenforceable and that they were therefore entitled to common law reasonable notice.

In Baker, the employee’s employment agreement permitted the employer to terminate employment “at any time” without cause so long as the employee received the minimum entitlements required by the ESA. The agreement also contained a for-cause provision which, importantly, preserved the employee’s minimum ESA entitlements. At first instance, the motion judge held that both provisions were unenforceable, finding the use of “at any time” was inconsistent with the ESA, which provides protections from termination in certain circumstances, such as during statutory leaves.

In Wayfair, the contract contained similar language, permitting termination “at any time and for any reason” while repeatedly confirming that the employee would receive no less than his minimum ESA entitlements on termination. However, unlike the result in Baker, the motion judge in Wayfair upheld the termination provision as enforceable and concluded that, when read as a whole, the agreement demonstrated a clear intention to comply with the ESA.

Context Over Technicality

The Court began with an acknowledgement that termination clause litigation in Ontario has increasingly focused on technical drafting, including whether individual words or phrases could be said to create a theoretical inconsistency with the ESA and thereby render an otherwise clear and carefully drafted provision unenforceable. The Court rejected this approach.

Relying on the Supreme Court of Canada’s decisions in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 and Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20, the Court instead reaffirmed that employment agreements must be read as a whole and interpreted considering the parties’ objective intentions, not isolated words or hypothetical interpretations. The Court specifically cautioned against a “magic words” approach to termination clause litigation and against searching for ambiguities where none reasonably exist.

In both Baker and Wayfair, the Court found that the lower courts should not rely on a hypothetical interpretation of the phrase “at any time” or “for any reason,” which failed to consider the objective intentions reflected in the agreement as a whole. In particular, these employment contracts repeatedly affirmed the employer’s intention to comply with the ESA, including through provisions explicitly stating that ESA minimum standards would prevail or be minimally maintained. In Wayfair in particular, the Court found that the inclusion of “for any reason” did not suggest that an employer could dismiss an employee for reasons prohibited by statute or that statutory protections had been waived. In other words, the provision addressed the employer’s ability to terminate without cause, not its ability to terminate unlawfully.

Employer Takeaways

The decision provides welcome guidance for employers and counsel drafting termination provisions. It may also provide some comfort for “older” contracts that retain the “magic words” which the Court addressed. While careful drafting remains essential, the Court confirmed that termination clauses should be interpreted in context and with regard to the agreement as a whole, not through an overly technical examination of isolated words or phrases.

More broadly, the Court’s decision supports a more practical and common-sense approach to employment contract interpretation. Where an agreement demonstrates a clear intention to comply with the ESA and preserve statutory minimum entitlements, the Court infers that courts should not strain themselves in search of hypothetical statutory violations or unreasonable alternative interpretations to invalidate otherwise enforceable employment agreements. And importantly, it looks to the intention of the parties at the formation of the contract and whether the wording supports that intention.

However, while the Court’s decision is welcome news after years of battling over the placement of words and phrases in termination provisions, this is no free pass for employers. Employment agreements remain important contractual documents that will be scrutinized by the courts. Employers remain best served by implementing a consistent approach to drafting, structure, legal review and ongoing maintenance of their employment agreements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.