With employers feeling like they could “do little more than guess” at whether a termination clause was enforceable, today’s Ontario Court of Appeal (ONCA) decision in Baker v. Van Dolder’s Home Team Inc. and Li v. Wayfair Canada (both referred to as “Baker” in this blog) is welcome news. The ONCA has brought contractual interpretation principles back to basics, with a key consideration for enforceability being the parties’ objective intentions when entering into the employment agreement.
For the past two years, the Ontario courts have issued a variety of decisions addressing the enforceability of termination provisions in employment agreements, many of which are tied to whether those provisions comply with the Ontario Employment Standards Act, 2000 (the “ESA”). Baker, in particular, turns on the use of the phrases “termination at any time” and “termination for any reason,” and provides helpful guidance that relies largely upon first principles of contract interpretation.
Background
The anticipated appellate guidance arises out of the decision in Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952. The appeal was of such importance that it attracted intervenors such as the Ontario Chamber of Commerce and the Income Security Advocacy Centre.
Prior to the appeal, the Ontario Superior Court of Justice (ONSC) had found on a summary judgment motion that both the “without cause” and the “with cause” provisions were unenforceable.
The relevant termination provision in Baker read:
Termination without cause: we may terminate your employment at any time, without just cause, upon providing you with only the minimum notice, or payment in lieu of notice and, if applicable, severance pay, required by the Employment Standards Act. If any additional payments or entitlements, including but not limited to making contributions to maintain your benefits plan, are prescribed by the minimum standards of the Employment Standards Act at the time of your termination, we will pay same. The provisions of this paragraph will apply in circumstances which would constitute constructive dismissal.
Termination with cause: we may terminate your employment at any time for just cause, without prior notice or compensation of any kind, except any minimum compensation or entitlements prescribed by the Employment Standards Act. Just cause includes the following conduct:
a. Poor performance, after having been notified in writing of the required standard;
b. Dishonesty relevant to your employment (such as misleading statements, falsifying documents and misrepresenting your qualifications for the position you were hired for);
c. Theft, misappropriation or improper use of the company’s property;
d. Violent or harassing conduct towards other employees or customers;
e. Intentional or grossly negligent disclosure of privileged or confidential information about the company;
f. Any conduct which would constitute just cause under the common law or statute.
[Emphasis added.]
The motions judge found that the language “at any time” was inconsistent with the ESA, since the ESA prohibits employers from terminating an employee’s employment at certain times such as due to a protected leave of absence.
However, since the Baker decision in 2025, the ONSC itself has grappled with the language of termination provisions, with some courts finding that the “at any time” language at issue in Baker was actually enforceable (i.e., Li v. Wayfair Canada ULC., 2025 ONSC 2959 [Li]).
The relevant termination provision in Li read:
For all purposes in this letter, “Cause” means any willful misconduct, disobedience, or willful neglect of duty that is not trivial and has not been condoned by the Company and that constitutes “cause” under the ESA. […]
The Company may terminate your employment at any time for Cause without notice, pay in lieu of notice, severance, benefits continuance or other compensation or damages of any kind, unless expressly required by the ESA in which case only the minimum statutory entitlements will be provided.
After your probationary period concludes, in the absence of Cause, the Company may terminate your employment at any time and for any reason by providing you with only the minimum statutory amount of written notice required by the ESA or by paying you the minimum amount of statutory termination pay in lieu of notice required by the ESA, or a combination of both, as well as paying statutory severance pay required by the ESA, providing benefits continuance for the requisite minimum statutory notice period under the ESA and all other outstanding entitlements, if any, owing under the ESA. These payments and benefits shall fully satisfy all of the Company’s notice, severance and benefits continuance obligations upon the termination of your employment, whether arising under the ESA, the common law or this Agreement, and you agree you shall have no further entitlements unless expressly required by the ESA. In no event will you receive less than your statutory minimum entitlements under the ESA.
[Emphasis added.]
In Li, despite similar language to the motions court decision in Baker, the motions judge found that the employment contract as a whole led to the conclusion that it sought only to exclude the right to common law damages and that it limited entitlements on termination to the minimum required by the ESA.
The ONCA heard the appeal of the decision in Li as a companion appeal to Baker, in order to definitively address the uncertainty in the Ontario case-law governing termination provisions in employment contracts.
The Court of Appeal speaks
The ONCA allowed the employer’s appeal in Baker and dismissed the employee’s appeal in Li, finding that the “with cause” and “without cause” provisions were enforceable in both contracts.
Starting from first principles, the appellate court found that even within a context which protects the interests of vulnerable employees, the goal of contractual interpretation – including employment contracts – is to determine the objective intentions of the parties within the relevant context.
In both Baker and Li, the language of the employment agreements reflected an objective intention to comply with the minimum standards in the ESA upon termination of employment. Within this context, the ONCA confirmed that it was not reasonable to consider that the words “at any time” or “at any time and for any reason” included times and reasons that were not permitted by the ESA. The court stated that the fact the words “at any time” could potentially undercut the ESA was based on a literal reading of the words in isolation, and that it entirely ignored the fact that the parties could not have reasonably intended this interpretation within the context of the contract.
Further, the ONCA found that it was illogical to read a termination provision intended to provide an employee with only their minimum statutory rights on termination as also permitting the employer to violate other rights in the same statute. This intention was reinforced by a well-drafted “failsafe” or saving provision within the employment agreement which affirmed the intention of the parties to comply with minimum employment standards.
Ultimately, it was determined that there was no inconsistency between a contractual right to terminate employment “at any time” or “for any reason,” and the reality that the time or reason would remain subject to any contractual or statutory limits. The appellate court surveyed Ontario case-law addressing these phrases (and even looked at the “at its sole discretion” language which had also been challenged by employees to try to overturn statutory minimum termination clauses) and found that these provisions are not inherently unenforceable.
Key takeaways
The importance of the Baker decision is difficult to overstate. For the past two years there has been considerable debate about the enforceability of termination provisions containing “at any time” language, even where there was a clear intent by the parties to limit termination entitlements to the minimum requirements of the ESA. This debate led to countless claims for greater common law notice of termination and costly litigation.
The ONCA decision in Bertsch v. Datastealth Inc., 2025 ONCA 379 is now joined by the ONCA decision in Baker in providing positive guidance for employers drafting enforceable termination provisions.
In addition to refocusing on the objective intentions of the parties, the ONCA has highlighted that the modern approach to contractual interpretation is not about technical and legalistic formulations, but a practical and common-sense approach.
Following this approach, contractual provisions – including termination clauses – are not ambiguous simply because it is possible to identify potential or hypothetical interpretations. Reviewing courts are instead to focus on genuine ambiguity, where two or more reasonable but different interpretations are consistent with the context of the entire contract, and not strive to find ambiguity where none exists.
Termination clauses are not inherently defeated by the mere inclusion of a phrase – such as “at any time,” “for any reason,” or “at its sole discretion.” Rather, they are to be interpreted alongside the remaining contractual language, including provisions asserting that an employee’s minimum statutory rights will be respected “at all times.”
As Sproat J. concluded in the lower court Baker decision, Ontario caselaw has set an exacting standard for employers. The appellate Baker decision has now provided additional direction as to how employers can meet this standard.
For more information, please reach out to the authors, Ola Mobarak, Catherine Coulter and Craig Lawrence.
