The Court of Appeal for Ontario’s decision in Baker v. Van Dolder’s Home Team Inc., 2026 ONCA 568 makes me want to leave the practice of law. Not just employment law, but the entire profession.
While that opening is melodramatic, I have always had a penchant for theatrics. Moreover, the only way to properly describe my reaction to the Court’s decision is existential.
A little over six years ago I wrote a blog post, which I titled Employment Law Isn't Real. In that post, I suggested that if employment law was not real, then the Court of Appeal’s decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391 (CanLII) is wrong.
The point of that post was to argue, of course, that Employment Law is real. By which I mean that it is a distinct body of law with its own jurisprudence and analytical framework. For the sake of completeness, and as I have confirmed many times, I agree with the Court’s decision and analytical approach in Waksdale.
The Court of Appeal’s recent decisions in Baker and Li v. Wayfair Canada ULC., released concurrently but not included in the citation, suggest otherwise. Those decisions seem to prove the argument that Employment Law is Not Real.
But it is. Employment Law is real.
Employment Law is not simply applied contracts. If I am wrong in that understanding, then perhaps I should not be in this profession. Perhaps I should tread the boards again.
Facts
To begin, there is a reason the Court’s decisions in these cases hit differently. For sure, courts occasionally get decisions wrong. That is why we have courts of appeal in the first place. However, whereas one erroneous decision may be disappointing or frustrating to the pedants and academics, in these two cases, the Court of Appeal was expressly attempting to “get it right.” Consider, for example, the opening paragraphs of the Court’s reasons for decision:
[1] In 2018, this court observed that, despite a myriad of cases considering whether termination clauses are compliant with the Employment Standards Act 2000, S.O. 2000, c. 41 (the “ESA”), “[i]t is fair to say that not all of the cases can be easily reconciled.” At around the same time, a leading practitioner in the field delivered a much blunter assessment, arguing that “[c]ounsel can do little more than guess at the answers to the central questions of when a termination clause will be upheld as valid and enforceable, and as displacing the employee’s common law entitlement to reasonable notice or pay in lieu thereof”: see Stephen J. Moreau, “Fixing the Broken Law of Termination Clauses” (2020) 22:2 C.L.E.L.J. 143, at p. 143. One of Moreau’s chief complaints was that virtually identical termination clauses might in one case be found to be inconsistent with the ESA and therefore void, but in another be found to be valid and enforceable. He explains, “[t]he case law has often divided sharply on what can only be described as the most pedantic or trivial of grounds … [t]he failure to insert, or not insert, a word has often been fatal”: Moreau, at p. 149.
[2] The two orders under appeal suggest that the uncertainty in the jurisprudence governing termination provisions in employment contracts has yet to be satisfactorily resolved. The impugned language in the without cause termination provisions in the two contracts at issue were virtually identical. Yet in Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952 (“Baker v. Van Dolder”), the inclusion of the words “at any time” was held to be inconsistent with the ESA, rendering the termination clause unenforceable, whereas in Li v. Wayfair Canada ULC., 2025 ONSC 2959, 99 C.C.E.L. (4th) 242 (“Li v. Wayfair”), a provision permitting without cause termination “at any time and for any reason” was held to be valid and enforceable.
[3] These appeals provide an opportunity to clarify the relevant legal principles governing the interpretation of termination provisions in employment contracts. This will not only assist trial courts which must determine the enforceability of such provisions but, more importantly, serve the mutual interest of the parties to such agreements, who might thereby be spared the necessity of litigating an issue of considerable consequence at a time when employees are particularly vulnerable.
“These appeals provide an opportunity to clarify the relevant legal principles governing the interpretation of termination provisions in employment contracts.” The intention of this decision was to settle all debate. To “get it right.” To “assist trial courts which must determine the enforceability of such provisions.” These decisions were not intended to be “one offs” or “throw aways,” they were intended to be followed.
Almost anyone with an interest in Ontario employment law would have bet on the Court upholding the decision in Baker and overturning the decision in Li. It’s a good thing they didn’t.
Decision of the Court of Appeal for Ontario
In a decision released August 6, 2026, the Court of Appeal for Ontario (Zarnett, Monahan and Rahman JJ.A.) shocked Ontario’s employment bar and held otherwise.
What bothers me the most about the Court’s decision is its ability to transition from paying lip service to the notion that employment law jurisprudence is distinct, and that the analytical framework applicable to employment contracts is sui generis, to effectively eschewing all of that in favour of a completely different approach. Consider, for example, paragraph 4 of the Court’s reasons for decision:
These established principles begin with the recognition that employment contracts must be interpreted differently than other commercial agreements so as to further employment law principles, most notably the desirability of protecting the interests of vulnerable employees. At the same time, determining the meaning of an employment contract is still an exercise in contractual interpretation, with the goal being to understand the objective intentions of the parties as expressed in the wording of the contract as a whole, understood in light of the relevant surrounding circumstances.
I mean, breathe a little between those two thoughts. How does one go from saying, “employment contracts must be interpreted differently than other commercial agreements,” to a complete adoption of the analytical framework applicable to commercial agreements? Are employment contracts to be interpreted differently or not? I digress. My commentary is supposed to follow.
Let’s return to the Court’s decision, but it continues to be a study in “say one thing, but do another.”
In paragraph 28 of the Court’s reasons, Justice Monahan writes the following:
[28] It has long been recognized that a contract of employment “has many characteristics that set it apart from the ordinary commercial contract”: Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, at para. 91. These characteristics include the importance of employment to an individual’s dignity and sense of self-worth; the pronounced power imbalance between employers and employees; and the fact that individual employees generally lack bargaining power vis-à-vis their employer in negotiating more favourable contract terms, especially concerning tenure: see Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986, at pp. 1002-03; Wallace, at paras. 90-94; Ceccol v. Ontario Gymnastic Federation (2001), 2001 CanLII 8589 (ON CA), 55 O.R. (3d) 614 (C.A.), at paras. 47-48; and Wood, at paras. 25-28.
[29] Employees are most vulnerable and in need of protection at the point at which the employment relationship ruptures: Wallace, at para. 95. Given this need, courts have given prominence to the remedial nature of the ESA, s. 5 of which prevents parties from contracting out of its standards, and have favoured interpretations of termination provisions in employment contracts which encourage employers to draft agreements that comply with it. This is because “[i]f the only consequence employers suffer for drafting a termination clause that fails to comply with the ESA is an order that they comply, then they will have little or no incentive to draft a lawful termination clause at the beginning of the employment relationship”: Wood, at para. 28, citing Machtinger, at p. 1004. Although parties may agree to termination without reasonable notice as required at common law, they may not agree to do so in a way that limits the employer’s obligations under the ESA. A termination clause will rebut the presumption of reasonable notice at common law and comply with the ESA only if its wording is clear and, if a termination clause could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee: Wood, at paras. 20, 28; Ceccol, at para. 49.
Much like the first sentence in paragraph 4, included above, so far, so good. But now let’s continue to paragraph 30:
[30] At the same time, the determination of the meaning of an employment contract is still an exercise in contractual interpretation. The modern approach to contractual interpretation has shifted away from technical and legalistic formulations and towards a “practical, common-sense approach” that focuses on the objective intention of the parties in light of the words used and the surrounding circumstances: Sattva, at paras. 47, 49, 56-58. The overriding concern is to ascertain “what the parties would have reasonably understood their words to mean and to ensure the parties’ objective intention is not thwarted by strict rules of interpretation…”: Earthco, at para. 95. To achieve this objective, courts must “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva, at para. 47.
[31] The requirement that contracts must be interpreted in light of their surrounding circumstances is important. It is premised on the fact that contractual intention cannot be properly ascertained by looking at words in isolation, since “words alone do not have an immutable or absolute meaning”: Sattva, at para. 47; Earthco, at para. 64. Thus, while “the meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean”: Sattva, at para. 48, citing Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.), at p. 115. Moreover, courts should avoid a legalistic “magic words” approach whereby the use of certain words considered in isolation will necessarily determine the legal effect of a contractual provision: see Earthco, at para. 98.
[32] A further important interpretive principle is that a contractual provision is not ambiguous merely because it is possible to identify multiple potential or hypothetical interpretations. Genuine ambiguity only arises where there are two or more reasonable but differing interpretations considered in the context of the entire contract: Amberber, at paras. 43-45; Bertsch v. Datastealth Inc., 2025 ONCA 379, at paras. 9-11; see also Emond v. Trillium Mutual Insurance Co., 2026 SCC 3, 509 D.L.R. (4th) 583, at paras. 37-47. Moreover, courts should not strive to find an ambiguity where none reasonably exists: Amberber, at para. 65.
The Court of Appeal then turned to an application of those principles to the facts of theses cases, specifically the meaning of the words “at any time” and “for any reason.” Here is what Justice Monahan had to say about those words:
[33] Mr. Baker and Mr. Li argue that the Without Cause Provisions in their respective employment contracts are inconsistent with the ESA because they permit termination of employment “at any time” (in Mr. Baker’s case) and “at any time and for any reason” (in Mr. Li’s case) (in both cases, the “Impugned Words”). They argue that the ordinary and grammatical meaning of the Impugned Words is that they permit their employer to terminate their employment at times or for reasons that are expressly prohibited by the ESA or other Ontario statutes. Therefore, the Without Cause Provisions are inconsistent with the ESA and void.
[34] I do not agree. The interpretation proposed by Mr. Baker and Mr. Li requires a literal reading of the Impugned Words, considered in isolation from the context in which they are found. Moreover, it ignores entirely the overriding concern of modern contractual interpretation, which is to ascertain the objective intention of the parties in light of the words used and the surrounding circumstances known at the time the contract was entered into. As I explain below, when viewed through the proper interpretive lens, the parties could not have intended that the inclusion of the Impugned Words meant that the employers in these cases were thereby entitled to terminate Mr. Baker’s or Mr. Li’s employment despite express statutory provisions to the contrary.
…
[40] I agree that, when read literally and in isolation, it is indeed possible to find an inconsistency between the Impugned Words and provisions of the ESA. But as explained above, contractual provisions must be read in context, with a view to identifying “what the parties objectively intended based on the text and surrounding circumstances”: Earthco, at para. 73. When that proper interpretive framework is applied, it becomes evident that the parties could not have intended for the Impugned Words to have the meaning proposed by Mr. Baker on this appeal.
…
[43] … If the inclusion of the Impugned Words were also intended to permit Van Dolder to ignore express statutory prohibitions on termination found in the statute, this would render the clause unenforceable, thereby negating the reason for including the Without Cause Provision in the first place.
…
[47] What, then, is the meaning of the words “at any time” in the Without Cause Provision? Read in context, this wording simply reflects a mutual intention that a without cause termination will be valid and legally effective regardless of when it occurs. But the use of this wording is not intended to render legally effective a termination that is expressly prohibited by the ESA.
If the wording of paragraph 47 confuses you, like it does me, consider these additional words in paragraph 50:
Therefore, there is no inconsistency between saying on the one hand that an employer has the contractual right to terminate an employment contract “at any time”, and on the other acknowledging that such discretion is necessarily subject to any conditions the parties agreed to in the contract itself and any applicable statutory provisions found in the ESA, or other statutes.
I mean, so it’s not at “any” time, and it’s certainly not at “all” times, but let’s not allow that to clog the analysis.
In the end, the Court of Appeal found that because the employer clearly intended to comply with the ESA, it was “illogical” to read the words “at any time” or “for any reason” as somehow expressing a contrary intention.
Commentary
I must begin my commentary with two express caveats: The opinions herein are entirely my own; they may not necessarily reflect the views or opinions of my firm nor my clients. Second, my commentary concerns the Court’s approach; not the result. The following is an academic critique.
Here is the fundamental question to which I do not have a satisfactory answer: Why is the finding at paragraph 40, “when read literally and in isolation, it is indeed possible to find an inconsistency between the Impugned Words and provisions of the ESA” insufficient to void the contract termination provision?
I’m Sorry the Law Sets an “Exacting Standard”
One potential reason why potential illegality isn’t enough is because it’s just too darn hard for most employers, and perhaps some lawyers, to draft a contractual termination provision that does not offend the ESA.
In his reasons for decision in Baker, Justice Sproat of the Ontario Superior Court of Justice described the Court of Appeal’s earlier decisions in Wood and Rossman, as setting an “exacting standard that many employers and knowledgeable counsel have failed to attain despite their good faith and best efforts.” (2025 ONSC 952 at para. 23.)
Yes. 100%. Those standards are “exacting.” But, then again, isn’t that exactly the point?
Please do not misunderstand me. I have considerable empathy for those employers, especially those who paid someone to prepare their employment contracts, who, despite best intentions and efforts, discovered that their written agreements failed to sufficiently limit their severance exposure. It has been exceedingly difficult to draft such an agreement. But, I have been running a tidy little practice that did just that. I went so far as to muse as to whether I could legally “guarantee” my contractual termination provision would withstand judicial scrutiny.
To that end, I say only this: While, yes, it has been difficult to draft a termination provision that would withstand judicial scrutiny, the Court of Appeal never made it impossible. The fact that it was hard should not serve as a reason to abandon decades of jurisprudence.
“Close” is only supposed to count in horseshoes and hand grenades.
Intent Was Not Intended to Matter
The second ostensible reason the provision should not be voided is the Court’s express finding that the parties “intended” to comply with the ESA.
First of all, I’m not sure that’s accurate. Second, since when did that matter in employment law?
Let’s reconsider what the Court of Appeal writes in paragraph 29 of its own reasons in Baker: “if a termination clause could reasonably be interpreted in more than one way, courts should prefer the interpretation that gives the greater benefit to the employee.” The authority for such statement is two, recent, decisions of the Court of Appeal: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 and Ceccol v. Ontario Gymnastic Federation (2001), 2001 CanLII 8589 (ON CA), 55 O.R. (3d) 614.
Is there a way to interpret the termination cause as potentially violating the ESA? Yes. The Court of Appeal makes that finding in paragraph 40 by reading the words “literally.”
For even more absurdity, consider how the Court of Appeal approaches the question of whether an individual is an employee or an independent contactor – another favourite question in employment law.
In its reasons for decision Pringle v. Zenova Group PLC, 2026 ONCA 549, the Court of Appeal (van Rensburg, Miller and Sossin JJ.A.) made the following observation about the importance of intention of the parties to an employment contract:
[85] The fact that the Agreement states that it is not an employment agreement is not a significant factor and does not affect the result.
[88] The legal characterization of the parties’ relationship depends on its substance.
[84] Even where courts have specifically referred to the parties’ characterization of their relationship, they have continued to emphasize that the true substance of the relationship takes priority over the parties’ own characterization of it.
Said another way, when determining whether a worker is an “employee” or “independent contractor” the court will not give “significant weight” to what the parties intended, but rather will focus on substance.
The express reason the court employs such an approach, and effectively ignores the parties’ intent, is because employment standards legislation is intended to be remedial legislation that applies to as many workers as possible.
Bottom Line
Bottom Line: While the mercenary in me is happy for my employer clients, and while these decisions may provide them some relief and support, given that I have not had reason to question my own contractual termination provision for some time, they really don’t help me that much.
The businessperson in me does not like these decisions because it undermines what I always perceived as a marketing advantage: the ability to say that drafting termination provisions is hard, but that I was confident that my drafting would withstand scrutiny. The court’s lowering of the bar (in this analogy I presume we’re talking pole vault and not limbo) ostensibly reduces the need for Experience. At Work.
The academic in me is sad, frustrated, and confused. Far from creating certainty, these decisions introduce an entirely new element to the analysis: the subjective intention of the parties. Is evidence of intention now required? Can intention be inferred exclusively from the words used in the agreement, or must witness evidence be provided? What happens when the employer gives evidence that it intended to limit severance entitlements to no more than statutory minimums, but the employee has no idea what that sentence means? Questions for another day I suppose.
Sean Bawden: Experience. At Work.
I am an experienced employment lawyer and wrongful dismissal lawyer practicing across Ontario and beyond with Kelly Santini LLP, which is based in Ottawa.
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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