Termination clauses under scrutiny

With the end of the year around the corner, many Canadian employers are beginning to prepare for staffing changes and onboarding new team members. In non-unionized workplaces, a carefully drafted employment agreement can assist in safeguarding employers by limiting potential liability in the event of dismissal. It also provides clarity and certainty for both the employer and the employee by outlining each party’s rights and obligations in the circumstances under which the employment relationship comes to an end. As employers take to reviewing and revising their employment agreements, it is important to include a well-crafted termination clause.  

Recent developments in Canadian employment law have made it increasingly difficult to draft valid and enforceable termination clauses that can withstand court scrutiny.  

Courts across Canada have made it clear that, in order to be valid and enforceable, a termination clause must be compliant with the applicable employment standards legislation. 

For instance, in MacDonald v. Saskatoon Minor Basketball Association, 2024 SKKB 85, the employer argued that its executive director was an independent contractor who had been retained pursuant to a series of fixed-term contracts - the most recent of which included a without-cause termination provision that set out an entitlement to six weeks’ notice of termination. The Saskatchewan Court of King’s Bench rejected the employer’s arguments, finding that the executive director was an employee of the organization. The court held that since the termination provision provided a notice entitlement that was less than that set out in The Saskatchewan Employment Act, it was not enforceable. As a result, the court found that the employee was entitled to common law reasonable notice, which was significantly more than the employee would have been entitled to if their termination provision had been enforceable.  

Similarly, in the Ontario decision of Waksdale v. Swegon North America Inc, 2020 ONCA 391, the employee was terminated without cause and given pay in lieu of notice under the employment agreement. The employee argued he was still entitled to common law reasonable notice because the just-cause termination clause was not compliant with Ontario’s Employment Standards Act, 2000 (ESA). The employer admitted the clause was non-compliant but argued it was irrelevant, since the termination was without cause. The Ontario Court of Appeal disagreed, holding that all termination clauses must be read together and, if any part of a termination clause breaches employment standards, the entire provision is unenforceable. As a result, the employee was awarded additional damages for common law reasonable notice. 

Notably, Waksdale stands for the proposition that any non-compliance with applicable legislation means that the entire termination clause is unenforceable, even where the non-compliant portion is irrelevant to the termination in question. While Waksdale has largely been considered in Ontario, there is the potential that this rule may spread to other provinces.  

Ambiguous or overly broad language 

Ambiguous and overly broad language may also render a termination clause unenforceable. Where such language is present in a termination clause, courts presumptively resolve these ambiguities in favour of the employee.  

In Dufault v. Ignace (Township), 2024 ONCA 915, the applicable termination clause stated that the employer may terminate employment without cause “at its sole discretion” and “at any time.” The lower court found the termination clause to be unenforceable, holding that this language violated employment standards legislation because there are periods where an employer is prohibited from terminating an employee under the Ontario ESA (such as on protected pregnancy-related or other medical leaves), and an employer therefore cannot terminate without cause at “its sole discretion.” The lower court also found it to be unenforceable because the definition of “cause” was broader than that in the ESA, and because the "without cause" termination provision paid only the employee’s base salary during the statutory notice period, failing to meet the requirement to provide their full regular wages, which include more than just base salary. 

In reviewing the lower court’s decision, the Ontario Court of Appeal decided that the matter could be dealt with solely on the basis of the first issue - that the definition of “cause” was broader than what is set out in the ESA. As such, the lower court’s decision was upheld. 

Notably, however, other provinces have taken different approaches to interpreting ambiguous termination provisions. In Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222, the British Columbia Court of Appeal upheld a termination provision that was similar to that in Dufault, despite the employee’s argument that the provision was ambiguous. The provision in question allowed the federally regulated employer to terminate employment “at any time,” so long as notice and severance pay were provided in accordance with the Canada Labour Code. The Court of Appeal ruled that the parties’ intentions should be assessed using a “practical, common-sense approach,” and that a termination clause clearly incorporating statutory notice requirements is sufficient to rebut the common law presumption. 

While acknowledging conflicting Ontario case law on termination clauses, the court distinguished the difference between jurisdictions like BC - where legislation prescribes specific notice - and Ontario - which mandates “at least” minimum notice. It noted that the Canada Labour Code adopts a hybrid approach. The court dismissed the employee’s ambiguity argument, instead interpreting the contract as a whole within the context at the time it was signed. Ultimately, the termination was upheld as enforceable, and the Supreme Court of Canada denied leave to appeal. 

As such, while ambiguous or overly broad language has the potential to render a termination provision unenforceable in any jurisdiction, the decision in Egan exemplifies how the BC Court of Appeal is taking a more “practical, common-sense approach” to interpreting such provisions. Notably, the Manitoba Court of King’s Bench recently decided to follow the common-sense approach set out in Egan in its decision in Hebert v. Colin’s Mechanical Service Ltd, 2025 MBKB 87. Time will tell if courts in other provinces will adopt the technical approach seen in Dufault or the practical approach demonstrated in Egan. 

A proactive approach to termination clauses 

The above jurisprudence highlights a pattern of common mistakes made in drafting termination clauses - errors that may render termination clauses unenforceable, thereby entitling employees to common law reasonable notice, which often far exceeds what they would receive under the contract. To avoid such outcomes, employers must proactively review their employment agreements, and particularly the termination clauses within. 

Relying on boilerplate language or generic templates poses significant risks, as these often fail to reflect the specific operational realities, legal requirements, or business needs of the employer. By tailoring employment agreements to the unique circumstances of each employee and position, employers can establish clear terms that limit ambiguity and reduce exposure to costly disputes or wrongful dismissal claims while providing both the employer and employee with certainty. Given the evolving nature of employment law in Canada, regular contract reviews are essential to ensure compliance with current legislation and case law, and safeguarding against unforeseen liabilities. A well-drafted termination clause is a key tool for managing risk and setting clear expectations for both the employer and employee in the event that the employment relationship must be terminated. 

Jana Linner, K.C., is a partner at MLT Aikins in Regina, specializing in labour, employment, and human rights law. Callie Schwartz is an associate at MLT Aikins in Regina, specializing in labour and employment law and civil litigation.