A recent court decision at the Ontario Superior Court, Li v Wayfair ULC., 2025 ONSC 2959 (“Wayfair”), may change how courts view the enforceability of termination clauses.
Last year, we wrote about Dufault v The Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”). In that case, the Court held a termination clause to be unenforceable because it stated that the employer could terminate the employee’s employment “at any time” and at its “sole discretion”. The Court said that the language used in the clause breached the Employment Standards Act, 2000 (“ESA”), because (1) it could allow the employer to fire an employee who was on protected leave or after they have made a complaint about the workplace, and (2) the definition of “for cause” and “without cause” in the contract was too broad and did not refer to the ESA language.
On appeal, the Ontario Court of Appeal (“ONCA”) upheld the Dufault decision, but only on the second basis; in other words, ONCA held that the termination clause was unenforceable because of the broad language used in the definitions of “for cause” and “without cause”. ONCA did not address the other determination of the lower court, regarding the “at any time” and “sole discretion” language.
However, the Court in Wayfair dealt specifically with the “at any time” and “sole discretion” issue. The Court upheld a termination clause that included the “at any time” language for several reasons:
- the “at any time” language was present, but it was in the context of other ESA-compliant language (and it did not include the phrase “sole discretion”);
- the definition of “cause” was aligned with the ESA’s “wilful misconduct” standard; and
- the notice and benefits entitlements outlined in the clause were clearly limited to the ESA minimums. Overall, the Court noted that courts should review employment contracts as a whole, and that employment contracts will be enforceable as long as, when read as a whole, they comply with employment standards legislation.
Takeaways
Wayfair is one of the first cases to distinguish the decision in Dufault. As a result, it is important for employers, because it provides guidance on how to write enforceable employment contracts. Courts will analyze termination clauses in context, and they will focus on:
- explicit reference to ESA requirements;
- precise, ESA-aligned definitions of “cause”; and
- clear coverage of statutory entitlements, such as benefits and vacation time.
When drafting employment contracts, employers should be sure to avoid using phrases like “at any time” and “sole discretion” without including clear reference to ESA requirements and entitlements. Further, employers should ensure that the language in the contract, as a whole, is compliant with the ESA.
For employees, it is important to read your contract carefully when you sign it, and when you are terminated, because it is possible that your employment agreement may have an unenforceable termination clause.
If you have any questions about employment contracts, termination clauses, or any other employment law issues, please do not hesitate to reach out to one of Walker Law’s experienced litigation lawyers.