Termination Clause Language: What a New Court Ruling Means - HR Insights

A recent Ontario Superior Court decision has once again put a spotlight on the critical importance of carefully drafted employment contracts. For employers, this ruling is a stark reminder: even seemingly minor oversights in your termination clause language can render the entire provision unenforceable. This could expose your business to significant common law reasonable notice periods, which are often far more costly than the minimums set out in the Employment Standards Act, 2000 (ESA).

The case, Dufault v. The Corporation of the Township of Ignace, revolved around an employee who was terminated on a “without cause” basis. Her employment contract contained a termination clause that the court ultimately found to be invalid. While the employer argued the clause was clear, the court disagreed, focusing on a subtle but crucial detail regarding the continuation of benefits. This decision reinforces a trend we’re seeing from the courts—any ambiguity or potential violation of the ESA, however small, will likely void a termination clause.

Why This Termination Clause Language Failed the ESA Test

The central problem was not the employer’s intention but the specific wording used. The clause attempted to limit the employee’s entitlements upon termination to the minimums required by the ESA. However, it failed to explicitly guarantee the continuation of the employee’s benefits throughout the statutory notice period.

Under the ESA, when an employee is terminated without cause, they are entitled to receive not just their regular wages but also the continuation of their benefits for the duration of the notice period. The termination clause in this case did not explicitly state that benefits would continue. This omission created the possibility that the employer could, hypothetically, terminate the employee and only pay out their base salary, thereby violating the ESA. Because the clause could have been interpreted in a way that violated the Act, the court struck it down.

“A termination clause must be crystal clear that all minimum standards under the Employment Standards Act will be met. Any potential for ambiguity can and will be used to invalidate it.”

Dissecting Contract Wording: The “At Any Time” Provision

Interestingly, the court also examined another part of the clause that allowed the employer to terminate the employee “at any time.” The employee’s legal team argued that this phrase was overly broad and could imply that the employer could terminate them at any time without notice, which would also violate the ESA.

However, the court disagreed on this specific point. It found that the phrase “at any time” did not automatically invalidate the clause. The judge determined that this wording, when read in the context of the entire agreement, simply meant that the employer could end the employment relationship at their discretion, provided they followed the other terms outlined in the termination provision. This is a small but important clarification for employers. It shows that not every challenge to termination clause wording will succeed, but the margin for error is razor-thin.

The Impact of Unenforceable Termination Provisions

This ruling serves as a critical update on employment contract law. For years, many businesses have used template agreements without fully appreciating the evolving legal landscape. A clause that was considered ironclad five years ago might now be unenforceable due to recent court decisions.

The financial risk is substantial. If a termination clause is voided, an employee is entitled to common law reasonable notice. This can range from several months to over two years of pay, depending on factors like age, length of service, and the character of employment. For a long-tenured, senior employee, the difference between ESA minimums and common law entitlements can be tens or even hundreds of thousands of dollars.

This decision underscores the need for proactive contract management. It’s not enough to have a lawyer draft your agreements once; they need to be reviewed and updated regularly to align with the latest legal precedents.

Next Steps: Auditing Your Termination Clause Language

Navigating the nuances of employment contract wording is complex, but ignoring it is not an option. Here are three immediate, actionable steps every Ontario employer should take:

Audit Your Current Employment Agreements: Pull out your standard employment contract and review the termination clause specifically. Look for any ambiguity, especially concerning the continuation of salary, benefits, and any other compensation during the statutory notice period.
Ensure Explicit ESA Compliance: Your termination clause must do more than just mention the Employment Standards Act. It should explicitly state that the employee will receive at least their minimum entitlements under the ESA for notice, severance (if applicable), and benefits continuation. Use clear, unambiguous language.
Seek an Expert Legal Review: Do not rely on templates from the internet or outdated agreements. Engage an experienced employment lawyer to review and update your termination clauses. This small investment can protect your business from significant financial liability down the road.

The legal landscape for employment contracts in Ontario is constantly shifting. This latest ruling is another clear signal from the courts that they will protect employee rights by holding termination clauses to the highest standard of clarity and compliance.

Need help navigating HR changes? Book your free HR audit today or speak with our team about how Divino can support your business.

Sources