What is the state of the law of Ontario on termination clauses as of Labour Day 2025?
To say that the Ontario courts’ approach to contractual termination clauses has been a bit of a whirlwind over the last five years might be an understatement. Let’s recall that Waksdale, now nearly as ubiquitous as Bardal or Machtinger, was only released in August of 2020.
That is why I am grateful for Justice Ira G. Parghi’s reasons for decision in Chan v. NYX Capital Corp., 2025 ONSC 4561 (CanLII). Justice Parghi’s reasons provide a textbook summary of the state of the law on termination clauses in Ontario, which I summarize in this post.
While the case is interesting for several reasons, for the sake of this post, I am going to focus exclusively on the court’s analysis of whether the contractual termination provision was “legal.”
Justice Parghi provided the following reasons for her decision that the contractual termination clause in the plaintiff’s employment agreement, including its probationary employment provision, was void and unenforceable:
[7] The termination clause in the Employment Agreement, which includes the probationary employment provision at issue before me, runs afoul of the requirements of the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”) and is therefore void and unenforceable.
[8] The termination clause provides:
10. Termination
Your employment with the Company may be terminated as follows:
(a) The first three months of your employment are probationary, during which time the Company may terminate your employment at any time and for any reason at its discretion, without notice or pay in lieu of notice, or other obligation.
(b) You may resign from your employment at any time and for any reason upon providing the Company with two weeks of notice in writing of your resignation, which notice may be waived by the Company in whole or in part at its sole discretion save as may be required under the ESA.
(c) After you successfully complete the first three months of your employment, the Company may terminate your employment at any time without cause, upon providing you with notice, or pay in lieu of notice, benefits continuation and severance pay (if applicable) and any other benefits or entitlements strictly required in accordance with the minimum requirements set out in the ESA. It is agreed and understood that the provision of such notice or pay in lieu of notice, severance pay (if applicable), benefits continuation and any other benefits or entitlements required under the ESA shall constitute full and final satisfaction of any claim which you might have arising from or relating to the termination of your employment, whether such claim arises under statute, contract, common law or otherwise, save any claim that cannot be released by operation of a statute of Ontario.
(d) The Company may terminate your employment at any time for cause, without any obligation to you on account of notice or pay in lieu of notice, severance pay, or other obligation, other than accrued amounts owed to the date of termination. [Emphasis Added]
[9] Under the ESA, there is a general prohibition against contracting out of, or waiving, any employment standard established in the ESA. Any such purported contracting out or waiver by an employee or employer is void (s. 5.1).
[10] I find that the Employment Agreement is an improper attempt by NYX to have Mr. Chan contract out of his entitlements under the ESA, in four respects.
[11] First, paragraph 10(a) of the Employment Agreement provides that NYX may terminate Mr. Chan during the initial three-month period “at any time and for any reason at its discretion”. This court has held that under the ESA, an employer does not have an absolute right to dismiss an employee (Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029, at para. 46, aff’d 2024 ONCA 915, leave to appeal refused, [2025] S.C.C.A. No. 41680). For instance, an employer may not dismiss an employee in reprisal for attempting to exercise a right under the ESA (ESA, s. 74). As such, contractual language that purports to give an employer such expansive rights to terminate without cause is contrary to the ESA (Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952, at paras. 9-10).
[12] Second, paragraph 10(c) of the Employment Agreement similarly purports to allow for the termination of Mr. Chan “at any time without cause.” For the same reasons, such a provision is in violation of the ESA. [NB: This issue is set to come before the Court of Appeal in the Baker appeal, and in my view, Justice Parghi’s statement may not be correct. SPB]
[13] Third, paragraph 10(c) purports to release NYX from any claims Mr. Chan may have arising from the termination of his employment, except in respect of certain minimum entitlements under the ESA. However, certain types of claims arising from the termination of employment may not be contracted out of. For instance, if Mr. Chan were dismissed in reprisal for attempting to exercise a right under the ESA, he could claim damages, and paragraph 10(c) improperly purports to have him contract out of that right.
[14] Fourth, paragraph 10(d) purports to give NYX the right to terminate Mr. Chan “at any time for cause” without any notice of termination or severance pay. “Cause” is not defined in the ESA. However, the ESA only permits the termination of an employee without notice or severance pay in the narrow circumstances set forth in subsections 2(1)(3) and 9(1)(6) of Termination and Severance of Employment, O. Reg. 288/01 – namely, where the employee is guilty of “wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.” This is a significantly more onerous test than the common law standard for just cause. If an employee’s conduct does not meet this ESA standard, then, upon termination, they must be provided with the minimum notice and severance entitlements established in the ESA. I find that paragraph 10(d) improperly attempts to contract out of the ESA by purporting to give NYX authority to terminate Mr. Chan without notice or severance pay in circumstances that are broader than those provided for in the Regulation. This court has made the same finding with respect to similar “for cause” provisions in Dufault, at paras. 31-40, and Livshin v. The Clinic Network Canada Inc., 2021 ONSC 6796, 159 O.R. (3d) 430, at paras. 31-33, 39, and 52-53.
[15] The Court of Appeal for Ontario held in Waksdale v. Swegon North America Inc., 2020 ONCA 391, 446 D.L.R. (4th) 725, leave to appeal refused, [2021] S.C.C.A. No. 39326, that a clause in an employment agreement that purports to afford an employer more expansive termination rights than those established in the ESA will render the entire termination provision in the agreement void and unenforceable. This is so regardless of whether the termination provisions are found in one place or in several places throughout the agreement, and even if the employer adhered to the minimum standards established in the ESA at the time of termination (at paras. 10, 14). Waksdale’s approach was recently affirmed by the Court of Appeal in Dufault v. Ignace (Township), 2024 ONCA 915, 504 D.L.R. (4th) 456, at paras. 23-24, leave to appeal refused, [2025] S.C.C.A. No. 41680.
[16] Each of paragraphs 10(a), (c), and (d) of the Employment Agreement is contrary to the requirements of the ESA. Based on Waksdale and section 5.1 of the ESA, the termination provision of the Employment Agreement is therefore void and unenforceable in its entirety. This includes paragraph 10(a), which purports to establish that, for the first three months of his employment, Mr. Chan’s employment was probationary and could be terminated “at any time and for any reason at [NYX’s] discretion, without notice or pay in lieu of notice, or other obligation.” Paragraph 10(a) is a termination clause: it identifies a situation in which, according to NYX, it could terminate Mr. Chan.
Justice Parghi’s reasons then continue, and the court gets into an analysis of whether Mr. Chan was nonetheless a probationary employee at common-law (spoiler: no he wasn’t) and if he wasn’t a probationary employee, then to how much notice of dismissal he was entitled (spoiler again: three months), but I’ll likely write about that in a separate post.
Commentary
In but eight paragraphs, Justice Parghi manages to play all the hits related to employment-law contractual termination provision analysis: ESA, section 5.1, Waksdale, Dufault. While Justice Parghi is undeniably correct in her analysis in paragraph 15 of her reasons for decision, she could have also name-dropped Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310.
For those interested in learning more about this issue, I have written extensively on the subject of contractual termination provisions, and have summarized all of the cases referenced by Justice Parghi in the paragraphs referenced above, and more.
Takeaways for Employers
Every time I write about this subject, or I review cases such as Chan, I remind myself of what Justice Low wrote in the case of Wright v. The Young and Rubicam Group of Companies (Wunderman), 2011 ONSC 4720, “There is, in my view, no particular difficulty in fashioning a termination clause that does not violate either the minimum standards imposed by the Employment Standards Act or the prohibition against waiving statutory minimum requirements.” And then I laugh manically. Apparently, there is a particular difficulty in fashioning a termination clause that does not violate either the minimum standards imposed by the Employment Standards Act. Simple words such as “at any time” matter. The word “cause” does not mean what everyone else in Canada, if not the world, understands it to mean. And if you happen to misuse such words, then the court deems you to have attempted to contract out of the Employment Standards Act.
We all have skills and talents. No one person has a mastery of everything. Most of you had the good sense to dedicate your lives and passions to someone other than attempting to understand the intricacies of the Ontario Employment Standards Act and the Ontario courts’ expectations of contractual drafters. I don’t do my own electrical work. As I wrote about on LinkedIn, I don’t even prepare my own PowerPoint slides anymore. I entrust those tasks to experts in their field. Which is why you shouldn’t attempt to write your own contractual termination provision either.
Need an employment contract for your employees? Want to limit your severance exposure? Retain someone who knows what they’re doing to draft it for you. How much will it cost? More than nothing, but it will likely save you thousands, if not tens of thousands of dollars, if not more. Seriously.
Don’t believe me that a small investment can save you money? Read the Chan decision. He was employed for just under three months. Most would think he was a probationary employee and therefore entitled to nothing on termination. Want to know how much money he walked away with? $44,644.46 plus interest and costs. My employment contracts cost money, but I don’t charge $50,000. Just saying.
Sean Bawden: Experience. At Work.
I am an experienced employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, which is based in Ottawa. I have appeared in person in courtrooms all across Ontario from Stratford, to L’Orignal, to Thunder Bay.
For two and a half years I was in-house legal counsel providing employment law advice to one of Canada’s largest corporations and appeared in labour courts and tribunals literally the world over.
I have also been a part-time professor at Algonquin College and have taught Employment Law, Trial Advocacy for Paralegals, and Small Claims Court Practice. I am a past president (2024-2025) of the County of Carleton Law Association (“CCLA”), and have sat as a safe sport adjudicator.
I can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321 x233.
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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
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