What must a termination clause say in Ontario?

The termination clause is the part of an Ontario employment agreement most likely to be tested, and the part courts read most closely. A clause that works can save months of pay. A clause that fails can leave the agreement as if it said nothing.

Why do courts reject so many clauses?

Because the ESA says employers can’t contract out of its minimum standards, and courts interpret employment contracts in favour of employees. Ontario courts have held that if a termination clause could, in any circumstance, give less than the ESA minimum, it’s void, even if the employer would have paid the minimum in practice.

In Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Court of Appeal for Ontario held that an ESA-compliant “without cause” clause failed because a separate “for cause” clause in the same agreement didn’t comply with the ESA. The termination provisions are read together.

In Dufault v. Ignace (Township), 2024 ONSC 1029, a “for cause” clause that removed all entitlements for conduct short of the ESA’s wilful misconduct standard sank the whole termination scheme. The Court of Appeal dismissed the employer’s appeal on that basis in 2024 ONCA 915, without deciding the lower court’s other concern about wording allowing termination “at any time” in the employer’s “sole discretion,” and the Supreme Court of Canada refused leave to appeal in 2025.

That “at any time” point has since been addressed. In Baker v. Van Dolder’s Home Team Inc., 2026 ONCA 568, heard together with an appeal in Li v. Wayfair Canada ULC, the Court of Appeal held that wording allowing termination “at any time” or “for any reason” doesn’t, on its own, breach the ESA when the agreement read as a whole preserves the employee’s ESA entitlements. Waksdale still stands, so a defective “for cause” clause can still undo a compliant “without cause” clause.

What must the clause provide?

Element	ESA minimum to respect
Notice or termination pay	After three months of employment: one week if under a year, two weeks from one to under three years, then one week per completed year, up to eight weeks
Benefits	Continuation of benefit plan contributions during the statutory notice period
Severance pay	Where the employer’s payroll is at least $2.5 million, or in some mass terminations, and the employee has five or more years: a week per year, up to 26 weeks. See the severance guide
Vacation pay and wages owed	Paid in full
“For cause” terminations	The ESA’s standard for losing notice (wilful misconduct, disobedience or wilful neglect of duty that is not trivial and hasn’t been condoned) is narrower than common law just cause

See how much notice you owe when ending employment.

Which wording causes problems?

• “For cause” clauses that remove all entitlements for anything less than wilful misconduct.
• Clauses that pay only “base salary” during notice, leaving out benefits.
• Broad “at any time” or “sole discretion” language that isn’t tied back to the ESA minimums. After Baker, this wording isn’t fatal by itself, but courts still read the agreement as a whole.
• Clauses that let the employer change duties, pay or location at will, which can raise constructive dismissal and ESA issues if used to make a fundamental change.
• Language that’s ambiguous about whether the employee gets more than the ESA minimum.

Do I need to update old agreements?

Probably, if they were written before 2020 or copied from a template. Changing an existing employee’s termination terms usually needs fresh consideration, such as a raise, bonus or promotion, to be enforceable. New hires should sign before they start.

Can I avoid this by using contractors?

Not if the person is really an employee. See employee or contractor.

What to do next

Our employment agreement template includes termination terms written for the ESA, and we review existing agreements as a contract review. Fees are on our fees page. See also probationary periods and your first hire in Ontario.

This guide is general information about Ontario law, not legal advice for your situation. If you’re about to end someone’s employment, book a free 15-minute consult before you act.