Your Employment Contracts Are Not Risk Management Tools If They Don't Survive Litigation

Employment agreements are often treated as risk management tools. Employers rely on them to set workplace expectations and limit liability on termination. But an agreement only serves that purpose if it actually survives judicial scrutiny, and for the past few years, termination clause litigation in Ontario has increasingly turned on whether a court can find some theoretical reading of a clause that would violate the Employment Standards Act, 2000 ("ESA"), even where that plainly is not what the parties meant.

The Ontario Court of Appeal's recent decision in Baker v. Van Dolder's Home Team Inc.; Li v. Wayfair Canada ULC, 2026 ONCA 568, resolves that uncertainty, at least for now. The two appeals involved nearly identical without-cause language permitting termination "at any time" or "at any time and for any reason," yet two different motion judges had reached opposite conclusions on whether that language conflicted with the ESA. The Court of Appeal used the two cases together to settle the question.

The Court Rejects A Technical Approach

Writing for a unanimous panel, Monahan J.A. allowed the appeal in Baker and dismissed the appeal in Li, upholding both termination clauses. The Court rejected a "magic words" approach under which a single phrase is isolated and tested against a hypothetical statutory violation, regardless of the rest of the agreement. Instead, ordinary principles of contractual interpretation apply: courts must determine the parties' objective intention by reading the agreement as a whole, not by straining to find ambiguity where none reasonably exists.

Applied here, "at any time" simply affirms the general right of either party to end the employment relationship on notice; it does not, on its own, purport to override express statutory protections. The Court reached the same conclusion on "for any reason," finding it reflects the ordinary principle that an employer may terminate without cause, provided the employee still receives what the contract and the ESA require.

The Whole Agreement Matters, Not the Isolated Phrase

Both employment agreements in Baker and Li repeatedly affirmed an intention to comply with the ESA, including language confirming employees would receive their minimum statutory entitlements regardless of how the termination occurred. That context is what carried the day. The same reasoning led the Court to uphold the with-cause provision in Baker, which defined "cause" more broadly than the ESA's wilful misconduct standard but expressly preserved the employee's entitlement to statutory minimums. Because the clause could not result in an employee receiving less than the ESA requires, it stood.

What Has Not Changed

This is a positive development for employers, but it is not a license to stop paying close attention to drafting. The Court declined to revisit Waksdale v. Swegon North America Inc., so the underlying rule stands: if either the with-cause or the without-cause provision in a contract is unenforceable, the whole termination clause can fail, even the parts the employer never relied on. What changed here is how courts read individual phrases in context, not the requirement that every provision in the clause independently comply with the ESA.

For employees and their counsel, the decision narrows one avenue of attack, but it does not close the door on all of them. Provisions that genuinely try to contract out of ESA minimums, rather than simply using broad language to describe the employer's right to terminate, remain open to challenge.

Final Takeaways

This decision is an important development for Ontario employers and employees. It confirms that courts should interpret termination clauses using ordinary contractual principles, reading the clause and agreement as a whole rather than isolating individual phrases to test for theoretical statutory conflicts. The result in any given case will still depend on whether the agreement genuinely preserves ESA minimum entitlements, and the underlying drafting risk has not disappeared. For that reason, now is an appropriate time for employers and employees alike to review existing agreements against the framework set out by the Court of Appeal.

To discuss your organization's employment agreements, contact a member of Lerners LLP’s Employment and Labour Law Group.