In a much-anticipated decision, Baker v. Van Dolder's Home Team Inc., 2026 ONCA 568, the Ontario Court of Appeal recently addressed two simultaneous appeals involving nearly identical termination language that had produced opposite results in the lower courts.
Breaking the tie, the Court rejected a technical, "magic words" approach to interpreting termination provisions and held that phrases such as "at any time" and "for any reason" do not, by themselves, render a termination clause unenforceable where the agreement as a whole demonstrates a clear intention to comply with the Employment Standards Act, 2000 (“ESA”). This decision is expected to significantly reshape the interpretation and drafting of termination provisions in Ontario and bring the courts’ approach into closer alignment with other common law provinces. Although the decision is an Ontario case, its rejection of a technical "magic words" analysis may also influence courts in other provinces when interpreting termination provisions and assessing alleged drafting deficiencies.
What happened?
The court heard two appeals together involving similar termination language that had produced opposite results in the lower courts, providing an opportunity to address uncertainty that has developed regarding the enforceability of termination provisions containing certain impugned language.
In Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952 (“Baker”), the lower court held both termination provisions under examination to be unenforceable. Relying in part on the Superior Court's decision in Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029 ("Dufault"), the motion judge found that:
a) the phrase "at any time" conflicted with provisions of the ESA that prohibit employers from terminating employment in certain circumstances, including on the conclusion of a protected leave and as a reprisal for exercising ESA rights; and
b) illegal language is not saved by general language stating that the employer will comply with ESA.
By contrast, in Li v. Wayfair Canada ULC, 2025 ONSC 2959 (“Li”), the lower court upheld provisions permitting termination "at any time and for any reason". The motion judge distinguished Dufault, finding that reading the employment contract as a whole led to the conclusion that it sought only to exclude common law damages and limit the employee's entitlements on termination to the minimum required by the ESA. The motion judge relied on the fact that the without cause provision "clearly and repeatedly indicates payments will be made as 'required by' or 'under the ESA'".
These appeals provided the Court of Appeal with an opportunity to clarify how termination provisions should be interpreted and when references to ESA minimum standards will be sufficient to preserve their enforceability.
What did the Court of Appeal decide?
The Court of Appeal began by reviewing the governing principles of contractual interpretation in the employment context. The Court confirmed that employment contracts must be interpreted differently than other commercial contracts to, among other things, protect vulnerable employees and reflect the remedial purpose of the ESA.
Despite this particularity of employment contracts, the Court of Appeal confirmed that ordinary principles of contractual interpretation apply in the employment context. Courts must determine the parties' objective intention by reading the agreement as a whole and considering the surrounding circumstances, not focus on isolated words divorced from their context.
In applying these principles, the Court of Appeal:
- cautioned against a "magic words" approach under which particular words automatically invalidate a termination clause;
- stated that courts should not strain to find ambiguity where it does not exist;
- asserted that a clause is not ambiguous simply because a different interpretation could be imagined; and
- found repeated commitments to compliance with minimum entitlements make it implausible to interpret provisions as reflecting an intention to permit violations of the ESA.
The Court of Appeal ultimately allowed the appeal in Baker and dismissed the appeal in Li.
"At any time" does not violate the ESA
In Baker, the Court rejected the argument that the phrase "at any time" permitted termination in circumstances prohibited by the ESA or other Ontario statutes. The Court noted that the phrase affirmed the mutual right of employers and employees to terminate an employment contract "at any time", subject to express contractual or statutory provisions to the contrary. Read in context, the phrase simply confirms that a without cause termination will be valid and legally effective regardless of when it occurs – it does not purport to override express statutory prohibitions on termination.
The Court noted that Mr. Baker's contract repeatedly affirmed the employer's intention to comply with the ESA, including through a provision expressly stating that the employer would comply with the ESA "at all times" and that the ESA would prevail if any contractual term conflicted with statutory minimum standards. Read as a whole, the agreement could not reasonably be interpreted as authorizing unlawful terminations.
Similarly, the Court of Appeal found the phrase "for any reason" under examination in Li did not imply an intention to disregard statutory restrictions on termination. It instead reflected the established principle that employers may terminate employment without cause, provided employees receive their contractual and statutory entitlements.
The Court of Appeal also addressed the enforceability of with cause termination provisions that define "cause" more broadly than the ESA standard of "wilful misconduct". Under the ESA, most employees are entitled to statutory termination entitlements unless they have been guilty of "wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer". This standard requires a higher level of misconduct than the common law "just cause" standard, which encompasses conduct that is incompatible with the fundamental terms of the employment relationship.
In Baker, the with cause provision defined "just cause" more broadly than the ESA's wilful misconduct standard but expressly preserved the employee's entitlement to "any minimum compensation or entitlements prescribed by the Employment Standards Act". The Court of Appeal held that this proviso brought the provision into alignment with the ESA: even if the employee was terminated for contractual "cause" falling short of the ESA standard, the employee would still receive statutory minimum entitlements. The Court confirmed that employers may referentially incorporate ESA entitlements in an employment contract and that such provisions are valid.
Takeaways
This decision is one of the most significant Ontario appellate decisions on termination clauses in recent years. Employers and counsel should take note that the Court of Appeal’s decision seems to signal an intentional shift, specifically:
- Courts should assess termination clauses contextually, with regard to the entirety of the agreement and the intention of the parties, rather than by isolating individual words or phrases.
- Courts should focus on objective intent, particularly where the agreement demonstrates a clear intention to comply with the ESA.
- Termination provisions that expressly preserve ESA minimum entitlements remain more likely to withstand legal scrutiny.
For employers and counsel in Canadian common law jurisdictions outside Ontario who receive similar technical arguments, this decision helps bring the Ontario jurisprudence into line with other provinces.
Fasken’s Labour, Employment and Human Rights group regularly assists employers with drafting and reviewing employment agreements, including termination provisions. If you have questions about the impact of this decision on your organization's contracts, please contact one of the authors or your usual Fasken lawyer.
