Ontario employers have spent the past several years navigating uncertainty around the enforceability of termination provisions in employment agreements. A series of court decisions called into question whether common phrases allowing an employer to terminate "at any time" and "for any reason" could invalidate an otherwise compliant termination clause. In Baker v. Van Dolder's Home Team Inc. and Li v. Wayfair Canada ULC, the Ontario Court of Appeal has now provided much-needed clarity. The decision in both appeals reaffirms a practical approach to contract interpretation and offers important guidance for employers reviewing their employment agreements and termination provisions.
What employers need to know about Baker & Li
In Baker v. Van Dolder's Home Team Inc. and Li v. Wayfair Canada ULC, 2026 ONCA 568 ("Baker & Li"), the Court found that:
- Common termination clause language allowing for without cause termination "at any time" and "for any reason" are not, on their own, inconsistent with the Employment Standards Act, 2000 (“ESA”); and
- Courts should read employment agreements as a whole and give effect to what the parties objectively intended. They should not hunt for potential ambiguity in isolated phrases.
Why employers have faced uncertainty around termination clauses
In Dufault v. Ignace, 2024 ONSC 1029 (“Dufault”), the court reasoned that permitting termination "at any time" was inconsistent with the ESA, because the ESA restricts termination in certain circumstances, such as during a protected leave, or as reprisal for exercising a statutory right.
Since this decision, many other judges have followed Dufault's reasoning, which has led to the voiding of numerous termination clauses that contained language such as "at any time" or "for any reason". In Ontario, lower courts often diverged, and until Baker & Li, no higher court had ruled on whether this sort of language contravened the ESA where the termination provisions otherwise met ESA minimums. This led to widespread uncertainty for employers wondering whether their termination clauses remained enforceable or not.
What happened in Baker & Li?
The ONCA heard two separate appeals together in Baker & Li, as they both addressed the same issue.
In Baker, the contract allowed for termination "at any time, without just cause" on ESA minimum notice or pay in lieu. A separate provision permitted termination "at any time for just cause," with entitlements limited to any minimum compensation prescribed by the ESA. The lower court judge found that both were unenforceable.
In Li, the contract permitted termination "at any time and for any reason," again on ESA minimums. The contract also contained repeated assurances throughout that the employee would never receive less than his statutory entitlements. In this instance, the lower court upheld the language.
The Court of Appeal in Baker & Li allowed both appeals, and it determined that both clauses were enforceable, putting an end to several years of uncertainty for employers.
The Ontario Court of Appeal's return to contextual interpretation
The Court in Baker & Li explicitly rejected the type of reasoning found in Dufault and other analogous cases. Applying the modern approach to contract interpretation, it reiterated that employment contracts should be read as a whole, not parsed to find language that is potentially ambiguous only when read in isolation, divorced from the surrounding context. The Court specifically pointed to language that incorporates the ESA into the contract as an important part of this context. This can include the employer stating that they will comply with the ESA in their employment agreements, or explicitly linking entitlements to statutory minimums.
Additionally, though the ONCA explained that courts should remain alive to the remedial purpose of the ESA, as well as to the vulnerability of employees at termination, it found that an ambiguous clause should be read in an employee's favour only when more than one reasonable interpretation survives a contextual reading. Courts should not strain to manufacture ambiguity where objective intention, after taking the context of the entire agreement into account, is clear.
Are "at any time" termination clauses enforceable?
Addressing the "at any time" language specifically, the Court confirmed that these words simply meant that a without cause termination may be valid whenever it occurs. They do not express an intention to terminate an employee in circumstances a statute prohibits, such as during a job-protected leave.
Additionally, the Court dealt with the finding in Baker that the language “at any time for just cause” also rendered the termination clause unenforceable. The Court in Baker & Li noted that since the contract in Baker expressly preserved the employee’s minimum statutory compensation entitlements for terminations without cause and with cause, the clause did not contract out of the ESA and so remained enforceable.
Are "for any reason" termination clauses enforceable?
The Court also dealt with the "for any reason" language specifically. The reasoning from cases like Dufault implies that, by using the phrase "for any reason", employers are essentially contracting to allow for the termination of an employee for reasons contrary to the ESA, such as reprisal for exercising a statutory right. However, the Court in Baker & Li rejected this type of argument, stating that the phrase "for any reason", when read contextually, simply means the employer need not give a reason for a without cause termination, provided the employee receives their contractual and statutory entitlements. It does not communicate an intention to terminate for a reason the ESA prohibits.
What this decision means for employers
It should be stressed that while the Court revived the textual reading of employment agreements, this result does not alter Waksdale v. Swegon North America Inc., 2020 ONCA 391 (“Waksdale”). In Waksdale, the Court found that one defective component can void an entire termination scheme. Baker & Li does not overturn this. Instead, it restores a contextual, common sense approach to determining whether an element of a termination clause is actually ambiguous.
Most importantly for employers, this decision reverses several years of uncertainty in the wake of Dufault and other similar cases by providing clarity for when termination provisions will be enforced. It reaffirms that enforceable termination provisions must comply with ESA minimums for both with and without cause terminations. Furthermore, it reaffirms the proper approach to interpreting employment contracts by identifying and honouring the contracting parties’ objective intentions, which are discovered by reading the contract as a whole.
It remains to be seen whether this represents the last word on this topic, or whether an appeal will be filed and if so, the case heard by the Supreme Court of Canada.
