Ontario Court Of Appeal returns to practical, common-sense approach to termination provisions
It is not a secret that employment agreements play an important role throughout the employment relationship. From the outset of employment, a well-drafted agreement helps establish clear expectations and provides structure for how key aspects of the relationship will be managed including – perhaps most importantly – how the parties will manage the end of the employment relationship (that is, the termination clause). Termination provisions are a valuable risk-management tool that can help an organization set clear expectations, support consistent decision-making, and reduce uncertainty when employment ends. When properly drafted and implemented, termination clauses can give both employers and employees a clearer understanding of what will happen if the employment relationship comes to an end.
In recent years, however, termination clauses have often created more uncertainty than predictability. This is because courts across Canada have closely scrutinized termination language, and the enforceability of termination provisions has increasingly been challenged based on technical or hypothetical defects. Against that backdrop, the Ontario Court of Appeal’s decision in Baker v. Van Dolder’s Home Team Inc., 2026 ONCA 568 is a welcome reminder for HR professionals that employment agreements still matter. The decision in Baker confirms that termination provisions should be interpreted in a practical, common-sense way and that parties should not be striving to find an ambiguity where none reasonably exists.
Reining in the uncertainty: Baker v. Van Dolder’s Home Team Inc.
In Baker, the Ontario Court of Appeal addressed two lower court decisions that clearly illustrated the uncertainty that had been created around termination clauses. This was because both lower court decisions considered termination language that was, in practical terms, nearly the same; however, the courts reached different results on whether those clauses could be enforced:
- In Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952, the without-cause termination provision stated that the employer could terminate the employee “at any time” upon providing the required notice of termination. The motion judge found that these words rendered the without-cause termination clause unenforceable because it could be read as permitting the employer to terminate in circumstances prohibited by the Ontario Employment Standards Act, 2000 (such as at the end of a protected leave of absence or in reprisal for a protected action).
- In Li v. Wayfair Canada ULC., 2025 ONSC 2959, the without-cause termination provision stated that the employer could terminate the employee “at any time and for any reason” by providing the employee with his statutory entitlements. The motion judge upheld this termination clause and held that the employee was only entitled to the statutory minimum amount of termination notice.
Given the conflicting lower court decisions, the Ontario Court of Appeal noted that the appeal in Baker was an opportunity to clarify “the relevant legal principles governing the interpretation of termination provisions in employment contracts.” In doing so, the court acknowledged that employment agreements are different from ordinary commercial contracts because of the nature of the employment relationship. At the same time, they remain contracts. That means the focus is still on determining what the parties objectively intended, based on the agreement as a whole and the circumstances in which it was made.
For HR professionals, one of the key points from the decision is that phrases such as “at any time” or “at any time and for any reason” do not automatically make a termination clause unenforceable. The court found that those words, standing alone, do not necessarily mean that an employer is trying to avoid its statutory obligations or reserve the right to terminate employment in circumstances prohibited by employment standards legislation. Instead, the question is whether the agreement, read in a practical and contextual way, shows an intention to comply with minimum employment standards. In both cases before the court, it did.
An overly technical approach to termination clauses
Notably, the court also pushed back against an overly technical approach to interpreting employment agreements, including attempts to rely on hypothetical scenarios to argue that a termination clause is ambiguous. The court confirmed that a contract is not ambiguous simply because “it is possible to identify multiple potential or hypothetical interpretations.” Instead, “[g]enuine ambiguity only arises where there are two or more reasonable but differing interpretations considered in the context of the entire contract.” This is an important reminder that termination clauses should be read in a practical, common-sense way. At the same time, the decision does not reduce the importance of careful drafting. While the court placed limits on what will amount to genuine ambiguity, employers remain responsible for ensuring that their employment agreements are clear, compliant, and capable of being understood as intended.
The court also confirmed that “savings clauses” can assist with that interpretation. Where an agreement clearly states that an employee will receive at least the minimum entitlements required by employment standards legislation, that wording may help show that the parties intended the agreement to comply with the law. A savings clause will not fix every drafting issue, but it can be relevant when assessing the agreement as a whole.
Ultimately, the Ontario Court of Appeal upheld both termination provisions, meaning the employees were limited to their minimum statutory termination entitlements. The court acknowledged that this outcome may seem harsh when compared to the potentially greater entitlement an employee may receive under common law reasonable notice. However, it emphasized that the adequacy of statutory minimums is a policy issue for the legislature. For HR professionals, the practical takeaway is that employment agreements can still be an effective tool for defining termination entitlements and limiting common law notice obligations, provided they are drafted clearly and in compliance with employment standards legislation.
Practical takeaways around employment agreements
As noted above, Baker is an important reminder that written employment agreements remain a key part of effective workforce management. A clear and enforceable termination clause can provide valuable certainty at a difficult point in the employment relationship, support consistent decision-making, and help reduce the cost and unpredictability of disputes over an employee’s termination entitlements.
The practical value of a termination clause was clear in Li. Because the clause was upheld, the employee’s entitlement was limited to the statutory minimum – one week of salary and benefits. If the clause had not been enforceable, the motion judge indicated that the employee would have been awarded four months’ common law reasonable notice. This example highlights how much can turn on the wording and enforceability of the employment agreement.
Although Baker is an Ontario decision, its emphasis on practical, contextual interpretation may be helpful to HR professionals across Canada. The decision reinforces the importance of reading employment agreements as a whole, rather than isolating particular words or phrases in search of hypothetical problems. It is also a useful reminder to revisit whether your organization’s existing employment agreement templates clearly reflect the organization’s intended approach to termination, avoid ambiguity, and comply with applicable employment standards legislation.
Jana M. Linner, K.C., is a partner practicing labour,employment, and human rights law at MLT Aikins in Regina. Jianna Rieder is an associate lawyer with the litigation group at MLT Aikins in Regina.
