Canadian Employment Law Update: Key Court Decision Brings Greater Certainty to Termination Clauses

Employers across Canada continue to face uncertainty over the enforceability of termination clauses in employment agreements. In a significant decision for organisations with employees in Canada, the Ontario Court of Appeal considered two related cases -  Baker v Van Dolder's Home Team Inc. and Li v Wayfair Canada ULC, and clarified how these clauses should be interpretated. Read the decision Baker v. Van Dolder's Home Team Inc., 2026 ONCA 568.

This decision provides useful guidance for employers across Canada, particularly those seeking greater certainty that their employment agreements will be upheld by the courts.

The Court confirmed that a termination clause must be considered as part of the employment agreement as a whole. Wording such as “at any time” or “at any time and for any reason” will not automatically make a clause unenforceable. Instead, the courts must consider the full agreement and the circumstances surrounding it to determine what the parties reasonably intended when they entered into the contract.

Key Takeaways:

• Language such as "at any time" and "at any time and for any reason" is not automatically unenforceable. Such language must be interpreted in the context of the entire contract to determine enforceability.
• Employment agreements must be read as a whole. Individual phrases should not be read in isolation without considering the meaning of such phrases within the context of the entire agreement.
• Compliance with employment standards legislation remains critical. Termination provisions are more likely to be enforceable where the contract clearly preserves and employee's minimum statutory entitlements.
• Employers with employees in Canada should review their employment agreements regularly. Although the decision provides greater certainty, enforceability will continue to depend on the precise wording used and the law of the relevant jurisdiction.

Background

The recent decisions in Baker and Li emphasized the uncertainty employers face in determining whether a termination provision in an employment agreement will be deemed enforceable. In Baker and Li, the lower Ontario courts assessed virtually identical termination provision language and held that one provision was enforceable while the other was not.  

In Baker, the inclusion of the words "at any time" was held to be inconsistent with Ontario's Employment Standards Act, 2000 (ESA) and therefore deemed unenforceable, while in Li, the inclusion of the words "at any time and for any reason" was held as valid and enforceable.

For employers operating in Canada, these inconsistent outcomes highlighted the broader challenge of drafting employment agreements that balance operational flexibility with compliance obligations.

What the Court Decided

The Court confirmed and elaborated on well-established principles of contractual interpretation in the employment context. The Court held that the termination provision wording in Baker and in Li, when considered in the context of the entire contract and surrounding circumstances reflected an objective intention of the parties to comply with the minimum standards in the ESA. 

The Court highlighted that interpreting termination provisions in employment agreements requires a practical, common-sense approach focusing on the objective intentions of the parties when considering the contract as a whole and giving words their ordinary and grammatical meaning. Further, the Court emphasized that a contractual provision is not ambiguous merely because it is possible to find alternative meanings and courts should be wary of finding ambiguity where none exists. 

While it may be possible to interpret the words "at any time" or "at any time and for any reason" to mean that the employer sought to ignore statutory provisions prohibiting termination in certain circumstances, such possibility does not create ambiguity. The Court found that when such words are read within the context of the contract as a whole (in the case of both employment agreements), the employer could not have intended for such words to include circumstances that are not permitted under the ESA. In particular, the Court noted that the contracts in both cases expressly and repeatedly stated that the employer intended to comply with the ESA and it would therefore be implausible to interpret the words "at any time" or "at any time for any reason" to intend to permit a violation of statutory prohibitions on termination. The Court held that the without cause termination provisions in Baker and Li were enforceable. 

The Court's decision reinforces a practical approach to contractual interpretation that recognizes employment agreements should be read as integrated documents rather than as isolated collections of individual clauses. This approach may provide greater certainty for employers seeking to draft enforceable agreements while continuing to comply with statutory minimum standards.

What this Means for Employers Operating in Canada

The decision provides greater clarity on how courts may interpret termination clauses. In particular, wording such as “at any time” will not automatically make a clause unenforceable where the agreement, read as a whole, clearly demonstrates an intention to comply with applicable minimum employment standards.

For International Businesses and their Advisers, the decision is also a reminder that Canadian employment law is highly regulated and varies between provinces and territories. Employers establishing operations in Canada, expanding their workforce or acquiring Canadian businesses should ensure their employment agreements reflect the legislation and developing case law in each applicable jurisdiction.

For employers operating in Canada, the practical impact is significant. Enforceable termination provisions provide certainty for the parties, mitigate against future legal costs, reduce exposure to common law reasonable notice claims, and support more precise due diligence analysis in transactions, restructurings, and workforce planning.

As Canadian courts continue to scrutinize employment agreements closely, proactive reviews can help employers identify drafting issues before they become costly disputes.

BD&P regularly advises Canadian and international employers on employment agreements, workforce management, termination matters, and employment-related risks arising in corporate transactions. The Employment and Labour team works with organizations operating across Canada to help ensure employment documentation reflects current legal developments and business objectives.

Further Reading:

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