Court of Appeals settles the debate: termination clauses aren’t overwritten by select words

See https://www.canlii.org/en/on/onca/doc/2026/2026onca568/2026onca568.html for full case decision.

TL;DR Summary:

1. The Core Ruling

• Recent Legal Shift: In the joint August 2026 decision (Baker v. Van Dolder’s Home Team Inc. and Li v. Wayfair Canada ULC, 2026 ONCA 568), the Ontario Court of Appeal ruled that phrasing like "at any time" or "for any reason" does not automatically invalidate an employment contract's termination clause.

• Context Over Diction: Courts will no longer strike down provisions based solely on isolated "fatal" words; instead, they will evaluate the agreement using a practical, common-sense approach that reads the contract as a whole.

2. ESA vs. Common Law Notice

• Statutory Minimums: Employment agreements must comply with the Employment Standards Act, 2000 (ESA), which dictates cheaper, formulaic termination and severance pay.

• Common Law Protections: If a clause violates the ESA, courts historically defaulted to costly common law reasonable notice packages calculated using Bardal factors (age, length of service, and position).

3. Key Takeaways for Employers and Employees

• Context Matters: Broad terminology is presumed to operate within the legal confines of the statute; parties are assumed to have acted in good faith with an objective intention to comply with minimum standards.

• No Manufactured Ambiguity: A provision is not legally ambiguous simply because a hypothetical or hyper-technical interpretation of a single word can be imagined.

4. What This Means for Employees

• Recourse is Still Available: While employers gained protection against technical word-parsing, this ruling does not mean all termination clauses are airtight. Employees retain full recourse if a contract genuinely attempts to contract out of the ESA, strips away statutory minimums, or violates prohibited termination periods (such as retaliatory firing or cuts during statutory leaves).

• Focus on Actual Intent and Compliance: If an employer's drafting mistakes or calculations result in a failure to deliver true ESA minimums upon termination, employees can still challenge the provisions and pursue proper remedies—shifting the battleground from tricky semantics to actual statutory compliance.

Facing a termination dispute or need your employment agreements reviewed? Contact Hosseini and Hosseini LLP at info@hosslaw.ca or (647) 581-3720.

Baker and Li; Termination Clauses and Changes in Employment Law

Introduction

In early-August 2026, a new authority from the Ontario Court of Appeals held that simply because employment agreements (specifically, termination clauses) hold words or phrases such as termination “at any time” or “for any reason”, they do not inherently violate the Employment Standards Act of 2000, putting an end to debates surrounding the potential invalidity of termination clauses due to these select “fatal” words.

Their decisions released on August 6th, 2026, the Ontario Court of Appeals, in Baker v. Van Dolder’s Home Team Inc. and Li v. Wayfair Canada ULC, jointly bearing citation 2026 ONCA 568, held that in their shared and specific instances, bearing an “objective intention to comply with minimum standards” and “[a consistency] with employment law principles [to] protect employees”, termination clauses challenged due to their potential unenforceable language were instead upheld as valid.

Both Baker and Li showcased arguments that termination provisions in employment contracts were inconsistent with ESA standards; as such, given their inconsistencies, common law reasonable notice calculations should apply instead, much costlier for the employer in events of termination without or with cause.

ESA vs. Common Law Reasonable Notice?

Note: the following is not legal advice. It is your responsibility to consult with independent legal advice to appropriately define your termination and/or severance pay. No attorney-client relationship is created by the dissemination of this information.

The Employment Standards Act of 2000 defined mathematical calculations in the determination of both termination and severance pay. So long that the employer terminated an employee within the bounds of what the ESA allowed, the costs of terminating would be much “cheaper” as compared to common law reasonable notice. On the contrary, common law reasonable notice stipulates that if termination is found to be outside the confines of the ESA, it imposed greater protections for employees in the event of termination. Known as Bardal factors, termination and severance packages would have to consider various factors such as age, length of employment, character of said employment (e.g. managerial vs. less-specialized, twenty-years “C-suite” or four-month seasonal work, etc.), and availability of similar employment, potentially spiking costs for employers from a few weeks to a few months of pay.

Typically, Bardal factors apply by default, unless termination clauses are crafted by employers in such a way that minimums established by the ESA apply. Previous authorities, such as Dufault v. The Corporation of the Township of Ignace (2024 ONSC 1029), deemed termination contracts as void and unenforceable if language was contrary to ESA principles, like those bearing language like “at any time”. Bertsch v. Datastealth Inc. (2025 ONCA 379) similarly found that termination clauses required clear and concise language to avoid being deemed unenforceable.

Formerly, small deviations or discrepancies in language opened employers to costs far exceeding those established by the ESA; instead of simply two-weeks of pay in lieu of notice, an employer may be liable for months instead. Baker and Li provide a silver-lining.

Case Facts of Baker and Li

As established in Baker’s lower court decision, both the contract’s without cause provision and with cause provision were deemed unenforceable for reasons to protect the employee. As for the Without Cause Provision, language such as “at any time” could be understood to firing employees at literally any time, including ESA prohibited periods such as on conclusion from an employee’s leave (i.e. medical leave, maternity leave), or in retaliation against an employee attempting to exercise an ESA-provisioned right. As for the With Cause provision, where “just cause” reasons such as poor performance with advance notice, dishonesty in application, theft, and more, were outlined, “regular employees” were deemed as disadvantaged by the Court as the clause failed to explain the ESA definition of willful misconduct, and that employees may be led to believe “that they had no entitlement”.

In Li v. Wayfair, where the termination clause of Mr. Li’s contract wrote that employment may be terminated “at any time and for any reason” [and] ... “in no event will you receive less than your statutory minimum entitlements under the ESA”, the trial judge rejected the argument that the provision was unenforceable. Instead, reading the contract “as a whole”, it was determined that the clause only intended to preclude Mr. Li from common law damages. Given that the provision stated clearly, “payments will be made as ‘required by’ or ‘under the ESA’”, the clause remained enforceable.

In Baker, the primary issue raised on appeal in the interpretation of these clauses was that the contracts failed to be interpreted in whole and as a result, failed to assume that Van Dolder acted in good faith. In Li, the opposite was appealed; since “any” in its “plain grammatical meaning” encompasses all times and all reasons without restriction, allowing the clause could be contrary to sections of the ESA and other Ontario statutes, and should thus not be allowed.

What This Means Going Forward

The Court of Appeal’s decisions highlighted the struggle to balance the protection of employees and to respect the nature of the contractual relationship. On one hand, the Court recognized the power imbalances between employer and employee that, as a result, necessitated the “remedial nature of the ESA”. On the other hand, the Court indicated a desire for a “practical, common-sense approach” instead of an overtly “technical and legalistic formulation”. It stated that courts must “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to both at the formation of the contract”.

Plainly? The Court iterated “word alone [does] not have an immutable or absolute meaning”. Thus, it held that courts should avoid an approach where certain words determine the legal effect of an entire provision; lost are the days where simply having select words means increased severance packages for the employee.

Considering them in context, the Court upheld the termination clauses. Words or phrases such as “any reasons” or “at any time” do not in themselves void contracts as whole. Both the employer and employee understand that broad phrases like "termination for any reason" actually mean "termination for any legal reason," so courts should not assume either party intended to violate applicable laws, nor quash enforceability because of that assumption.

Furthermore, the Court established that “a contractual provision is not ambiguous merely because it is possible to identify multiple potential or hypothetical interpretations.” Just because one word may be interpretative in various terms does not mean that the termination clause as a whole is not valid.

The Court essentially clarified its role; to focus “on what the parties objectively intended and what they reasonably understood their words to mean”. No ambiguity exists in “at any time” or “for any reason”; the plain understanding is that they exist within the confines of what the ESA permits; it would be an overstep of the courts to assume without added context that employers intend to take advantage of their employees.

Moving forward, just because one’s contract holds ambiguous language, simple words do not overwrite the validity of its termination clauses. Instead, employment contracts, like any other contract, should be read in context of what both parties intend to occur and understand to be true. Instead of semantics or word-choice, employers can now expect courts to focus on substance and context, not their diction.

Terminated or dismissed? Or, looking to terminate and dismiss? Hosseini and Hosseini LLP can help.

Contact us today at info@hosslaw.ca or at (647) 581-3720.

This article, from Hosseini and Hosseini LLP, was authored by Mattias Shao and Parmida Khanchi.

Mattias Shao is a first-year student at Western University, pursuing a degree in Management and Organizational Studies (Finance Specialization) with Ivey AEO status. LinkedIn

Parmida Khanchi is a final-year student at Toronto Metropolitan University (formerly, Ryerson University), pursuing a degree in Politics and Governance, and actively applying to law school. LinkedIn

Both are legal interns at Hosseini and Hosseini LLP.