Is Your Termination Clause Enforceable in Ontario? What’s New in 2026 for Employment Contracts

If your termination clause is unenforceable, you may be owed common-law reasonable notice, which can be significantly more than the minimum termination pay and severance required under Ontario’s Employment Standards Act (ESA). That difference can be substantial, making the wording of your employment contract an important part of determining what you are actually owed when your employment ends.

On August 6, 2026, Ontario’s Court of Appeal provided important new guidance on termination clauses in Baker v. Van Dolder and Li v. Wayfair, ruling that the words “at any time” and “for any reason” no longer void a clause on their own. Instead, courts must read the termination provision in the context of the employment agreement as a whole. The decision makes it harder to invalidate a clause based solely on a technical reading of individual words.

However, this does not mean every termination clause is now enforceable. Employers still cannot contract out of an employee’s minimum rights under the ESA, and a termination provision can still fail if its wording is legally defective. The recent Court decision changes how some termination clauses are interpreted, but it does not give employers a free pass to limit employees’ rights.

So, how can you tell whether your termination clause is (still) enforceable? And if it is not, how much more could you be owed? This article explains what changed in 2026, the grounds that can still invalidate a termination clause, and what employees should know before accepting a severance offer or signing a release.

Can Your Employer Limit Your Severance to the ESA Minimum in Ontario?

The short answer is yes — but only if your termination clause does everything the law requires. Ontario’s Employment Standards Act (ESA) prevents employers and employees from contracting out of the minimum standards. In other words, signing an employment contract does not make an otherwise illegal termination clause enforceable. If the clause provides less than the law requires, the fact that you agreed to it does not absolve the employer’s legal responsibility.

Without an enforceable termination clause, the default position is different. An employee may be entitled to reasonable notice under the common law, which can be substantially greater than the minimum termination pay or severance required by the ESA. Common-law reasonable notice is determined based on the circumstances of the employment, rather than simply applying the ESA’s statutory notice periods.

However, it is important to understand that not every termination clause fails. A clear and properly drafted provision can validly limit an employee’s entitlement to the ESA minimums. In Bertsch v. Datastealth Inc., for example, the Ontario Court of Appeal upheld a termination clause that limited an employee with approximately 8.5 months of service to four weeks of termination pay. The clause did what it was intended to: restricting the employee’s entitlement to the statutory minimum, rather than promising common-law reasonable notice.

Whether a termination clause is enforceable depends on what the contract actually says and whether those terms comply with the law. This can depend on the interaction between the termination provision, the rest of the agreement, and the ESA. 

What Did the Ontario Court of Appeal Change About Termination Clauses in 2026?

On August 6, 2026, the Ontario Court of Appeal resolved an important dispute over how termination clauses should be interpreted. The two cases, Baker v. Van Dolder’s Home Team Inc. and Li v. Wayfair Canada ULC, involved similar language in the termination clauses but reached different results. This prompted the Court to consider whether phrases such as “at any time” and “for any reason” could, on their own, make a termination clause unenforceable.

In short, the Court of Appeal’s answer was no: a termination clause does not become unenforceable simply because it says an employer may terminate employment “at any time” or “for any reason.” Instead, the Court emphasized that employment agreements must be interpreted as a whole, with the goal of determining the parties’ objective intentions. Courts should not isolate individual words or phrases and adopt an interpretation that creates an apparent conflict with the ESA, when the agreement, read in context, clearly demonstrates an intention to comply with the legislation.

Why Did “At Any Time” Become an Issue?

The argument against “at any time” wording was based on the fact that Ontario law places limits on when an employer can terminate an employee. The major concern was that the phrase could be interpreted as including circumstances in which the ESA prohibits termination: for reprisal reasons, post-leave dismissals, or during certain protected leaves, for example. On that reasoning, the clause could be viewed as attempting to give the employer a contractual right that is broader than the law allows.

This argument had gained traction in earlier litigation, including in Dufault v. The Corporation of the Township of Ignace. The lower court in Baker followed that reasoning, finding the “at any time” language problematic, even though the employment agreement also contained language indicating that the employer would comply with the ESA. Meanwhile, the lower court in Li reached the opposite conclusion, finding that the termination provision was enforceable when the agreement was considered as a whole. The conflicting decisions ultimately led the Court of Appeal to hear the two matters together.

What Did the Court of Appeal Decide?

The Court rejected what it effectively viewed as a technical approach to contract interpretation. The phrase “at any time” in a termination clause did not inherently mean that the employer had contracted for the right to violate the ESA — instead, it simply confirmed that the employer could terminate the employment relationship without cause, subject to the contractual and statutory limits that governed the agreement.

The same reasoning applied to the phrase “for any reason.” The Court found that this language, by itself, did not mean that an employer could terminate an employee for an unlawful reason or avoid its statutory obligations. Read in context, it communicated that an employer could end the employment relationship without cause and without having to provide a reason, provided that the employee received the entitlements required by the contract and the ESA.

What Still Makes a Termination Clause Unenforceable in Ontario?

The recent Court of Appeal decision did not make termination clauses immune from challenge. There are still several ways a termination provision can fail, and when it does, the employee may be entitled to common-law reasonable notice instead of only the ESA minimums. 

There remain five ways a termination clause can still be deemed unenforceable in Ontario:

1. The “with cause” provision violates the ESA.

Under Waksdale v. Swegon North America Inc., an illegal “with cause” provision can still invalidate the entire termination scheme, even if you were actually dismissed without cause. The reasoning is that the enforceability of the termination provisions is assessed together; an employer cannot rely on a compliant without-cause paragraph to save a separate provision that unlawfully allows it to avoid statutory obligations.

2. The clause provides less than the ESA requires.

A termination clause cannot contract out of Ontario’s minimum employment standards. For example, an employer cannot use a contractual provision to eliminate benefits that must continue during the statutory notice period or exclude severance pay where the employee qualifies for it. The Court’s instruction to read a contract as a whole does not allow a court to ignore an actual statutory shortfall.

3. The wording is genuinely ambiguous.

The Court of Appeal has made clear that courts should not manufacture ambiguity by picking apart individual words. However, that does not mean ambiguity has disappeared. Where two reasonable interpretations genuinely compete, the ambiguity can still be resolved against the employer that drafted the agreement. 

4. You signed a new contract after starting work without fresh consideration.

If any employer introduces materially new terms after employment has already begun, the new agreement may require fresh consideration (such as a raise, promotion, or other real benefit) to be enforceable. Simply telling an existing employee to sign a new agreement or risk losing their job is not necessarily enough.

5. Your job fundamentally changed after you signed the contract.

Under the changed substratum doctrine, a termination clause may no longer govern where the employee’s role and responsibilities have fundamentally changed since the agreement was first made. A promotion does not automatically invalidate an old clause, but a significant transformation of the employment relationship can raise that issue.

There are also a few important points worth remembering:

• A severability clause does not automatically rescue an unlawful termination provision. North v. Metaswitch Networks Corp. confirms that contractual severability cannot save terms rendered void by state.
• “Poor performance” is not the same as the ESA’s narrow wilful misconduct exception. For an employee to lose statutory termination pay, the misconduct must meet the regulation’s specific requirements, not just underperform. 
• Termination language giving an employer the right to act in its “sole discretion” remains unresolved. The lower court in Dufault found that language problematic, but the Court of Appeal did not decide that issue. Instead, it found the clause unenforceable based on the separate “with cause” problem.

How Much More Severance Could You Get if Your Termination Clause is Void?

The ESA caps statutory termination notice at 8 weeks, and statutory severance pay at 26 weeks for employees who qualify for both. That means an employee’s statutory entitlements can reach a combined maximum of 34 weeks. Common-law reasonable notice has no equivalent statutory ceiling and, depending on the circumstances, can extend to more than 24 months.

This is one of the most important consequences of an unenforceable termination clause. If your clause is void, you do not simply fall back to the ESA minimum. Since the Supreme Court of Canada’s decision in Machtinger v. HOJ Industries Ltd., an unenforceable termination provision generally leaves the common-law presumption of reasonable notice in place. In other words, the amount you may be entitled to could be substantially greater than the statutory minimum.

There is no simple formula to determine common-law reasonable notice. Courts consider the circumstances of each employment relationship, including factors such as your age, length of service, the nature and seniority of your position, and the availability of comparable employment. Your compensation structure can also matter, particularly where you receive bonuses, commissions, benefits, or other forms of compensation that would have continued during the notice period.

You can get a preliminary estimate of your entitlements using our Severance Calculator, although the amount that ultimately matters may depend on whether your termination clause is enforceable and what you are entitled to at common law.

Does a Promotion or a New Contract Cancel Your Old Termination Clause?

Sometimes, yes. An employment contract you signed years ago may no longer govern your termination rights, either because you received nothing in exchange for agreeing to new terms, or because your role changed so substantially that the original agreement no longer reflects the employment relationship.

What If You Signed a New Contract After Starting Work?

If your employer asks you to sign a new employment contract after you have already started working, the employer generally needs to provide something of value in exchange for the new terms. This is known as fresh consideration, and may include a raise, bonus, promotion, additional benefits, or other compensation. Simply continuing to employ someone who is already working for the company is generally not enough. 

What If Your Job Changed After You Signed the Contract?

A different issue can arise when the employee’s role itself changes substantially. Under the changed substratum doctrine, an old termination clause may no longer apply when an employee’s duties and responsibilities have fundamentally expanded beyond what the parties could reasonably have contemplated when the original agreement was signed.

However, it is important to keep in mind that employment relationships naturally evolve over time. With bringing in new employees, introducing new strategies, and any sort of company restructuring, there is likely going to be a slight change to what your day-to-day work looks like. The question, when considering whether a termination clause is voided, is whether the workplace changes were fundamental enough to transform the employment relationship, or whether the employee’s role simply developed in an expected course.

If you have been with the same employer for many years, it is worth revisiting the employment contract you actually signed. Check when it was signed, what position and duties it described, and compare those terms with the role you held when your employment ended. A significant gap between the two may be something worth reviewing.

Are You Owed More if You Are on a Fixed-Term Contract in Ontario?

If you are on a fixed-term contract and your employer ends it early, you may be owed everything you would have earned through the end of the term. Unlike most dismissed employees, you may also have no duty to mitigate those damages by looking for another job.

The Ontario Court of Appeal confirmed this distinction in Kopyl v. Losani Homes, where the employee was on a fixed-term contract that had an unenforceable termination provision. The Court held that the invalid termination clause did not cancel the fixed term itself. Instead, the employee was entitled to the compensation that would have been earned during the balance of the fixed term.

The last point is particularly important. In an ordinary wrongful dismissal claim involving an indefinite employment relationship, an employee generally has a duty to make reasonable efforts to find comparable employment. Income earned from new employment can reduce the damages owed by the former employer. However, where a fixed-term contract is ended early, and its termination clause is unenforceable, the employee may be entitled to the balance of the contractual term without a duty to mitigate.

If your employer terminated you before the end of a fixed term, do not assume that the termination pay offered under your contract is your full entitlement. The exact wording of the agreement, particularly its fixed-term and early-termination provisions, needs to be reviewed carefully.

What Should You Do Before You Sign a Severance Release?

You generally have two years from the date of termination to bring a wrongful dismissal claim in Ontario under the Limitations Act, subject to the specific circumstances of your case. However, the deadline is not the only issue to keep in mind, as signing the release attached to a severance offer can have much more immediate consequences.

A release is the document in which you agree to give up potential claims against your employer in exchange for the compensation being offered. Once you sign it, it can be very difficult to undo. That means you should understand what you may be giving up before you accept the severance package, particularly if you have concerns about the enforceability of your termination cause.

Do not let a deadline such as “we need this signed by Friday” make you feel that you have no choice but to accept. A deadline in a severance offer is a commercial deadline set by the employer; it does not necessarily mean that your legal rights disappear on that date. Asking for reasonable time to review the offer and obtain legal advice is a normal part of dealing with a termination package.

Before having the severance package reviewed, gather:

• Your signed employment contract and any later versions or amendments
• Your termination letter or email
• The complete severance offer and termination package
• The release you are being asked to sign
• Recent pay statements and information about your benefits, bonuses, commissions, or other compensation

These documents allow a lawyer to assess not only the amount being offered, but also whether the termination clause actually limits your entitlement. That distinction can be significant. If the clause is unenforceable, you may have a claim for common-law reasonable notice that is substantially greater than the ESA minimum.

This brings us back to what changed at the beginning of August. After the Ontario Court of Appeal’s decision in Baker and Li, you cannot reliably determine whether a termination clause is enforceable simply by spotting a phrase such as “at any time” or “for any reason.” At the same time, the decision did not make every termination clause enforceable. The agreement still has to be assessed as a whole and considered with the requirements of Ontario employment law.

If you have been offered a severance package, Roberts & Obradovic Employment Lawyers can review your employment contract, termination clause, and severance offer to help determine whether the amount you have been offered reflects what you may actually be owed. Before you sign a release, speak with an Ontario employment lawyer about your options.

Frequently Asked Questions About Termination Contracts

Being handed a severance offer with a deadline attached can be stressful. After the Ontario Court of Appeal’s 2026 decision, determining whether your termination clause is enforceable requires a careful look at the contract as a whole. Speak with our Ontario employment lawyers about what your clause actually means and what you may be owed.