Ontario Court of Appeal Clarifies Enforceability of Termination Clauses in Employment Contracts

The impact of finding a termination clause within an employment contract unenforceable is significant, as it generally leads to a terminated employee being entitled to reasonable notice at common law rather than the statutory minimums or some other agreed upon amount.

Over the past few years, the Ontario Court of Appeal (the “ONCA”) has issued multiple decisions finding certain termination clauses unenforceable. However, in the recent decision of Bertsch v Datastealth Inc, 2025 ONCA 379 (“Datastealth”), the ONCA notably found a termination clause enforceable, and provided guidance on the reasonable interpretation of termination clauses generally.

Facts

In Datastealth, an employee was terminated without cause by his employer. Upon termination, the employer provided 4 weeks’ pay in lieu of notice (one week more than the statutory minimum notice), as outlined in the employment contract.

Subsequently, the employee commenced a wrongful dismissal action, claiming entitlement to reasonable notice at common law. The employee argued that the termination clause within his employment contract was unenforceable, on the basis that it contravened the minimum standards of Ontario’s Employment Standards Act (the “ESA”). The termination clause at issue read as follows:

Termination of Employment by the Company: If your employment is terminated with or without cause, you will be provided with only the minimum payments and entitlements, if any, owed to you under the Ontario Employment Standards Act, 2000 and its Regulations, as may be amended from time to time (the “ESA”), including but not limited to outstanding wages, vacation pay, and any minimum entitlement to notice of termination (or termination pay), severance pay (if applicable) and benefit continuation. You understand and agree that, in accordance with the ESA, there are circumstances in which you would have no entitlement to notice of termination, termination pay, severance pay or benefit continuation.

You understand and agree that compliance with the minimum requirements of the ESA satisfies any common law or contractual entitlement you may have to notice of termination of your employment, or pay in lieu thereof. You further understand and agree that this provision shall apply to you throughout your employment with the Company, regardless of its duration or any changes to your position or compensation.

Interestingly, the employment contract also contained a “failsafe” clause, which read as follows:

If any of your entitlements under this Agreement are, or could be, less than your minimum entitlements owing under the Ontario Employment Standards Act, 2000, as amended from time to time, you shall instead receive your minimum entitlements owing under the Ontario Employment Standards Act, 2000, as amended from time to time.

Before the Ontario Superior Court of Justice, it was found that the termination clause was enforceable and compliant with the ESA. Accordingly, the employee’s wrongful dismissal claim was dismissed.

The employee appealed this lower court decision to the ONCA. The employee contended that the termination clause was ambiguous and unenforceable because it could be interpreted to allow termination for cause without meeting the ESA's standard of "wilful misconduct, disobedience or wilful neglect of duty." In essence, the employee argued that an ordinary person might misunderstand the clause to allow for termination without notice for conduct such as negligence.

In response, the employer argued that the termination clause was clear, unambiguous, compliant with the ESA, and limited the employee’s entitlements to the ESA minimums.

Decision

The ONCA dismissed the employee’s appeal, finding that the termination clause was enforceable. As stated by the ONCA, the primary consideration is how the termination clause could be reasonably interpreted, not whether an ordinary person might adopt an incorrect interpretation of the termination clause.

Here, it was found that the termination clause explicitly limited the employee to the ESA minimums, excluding reasonable notice at common law. The provision was clear and unambiguous, and there was no reasonable interpretation that would render it non-compliant with the ESA.

As it pertains to ambiguity, the ONCA noted that this requires “something more than the existence of competing interpretations.” Here, the termination clause was found to be straightforward, and thus not ambiguous. It clearly provided that, even if the employee were dismissed for just cause, the employee would still be provided with their minimum statutory entitlements. The phrase “with or without cause” was critical to this finding.

Finally, while the employment contract contained the “failsafe” clause, the ONCA found that such a clause was unnecessary in light of the termination clause being clear and enforceable.

Takeaways

While Datastealth is an Ontario decision, there are several takeaways which are useful to note:

• When interpreting a termination clause, the key consideration is how the termination clause could be reasonably interpreted (not whether an ordinary person might adopt an incorrect interpretation)
• A termination clause that purports to limit an employee to the statutory minimums must be clear and unambiguous in respect of providing for all minimum statutory entitlements and excluding any common law entitlements
• It is notable that the termination clause did not contain the phrase, “at any time” (suggesting the employee could be terminated without cause at any time). This phrase is something recent Ontario case law has suggested may be problematic. However, there is yet to be uniform consensus on this point across Canada. Accordingly, we recommend not utilizing this phrase in employment contracts, to err on the side of caution
• While not necessary, it may be sensible to include a failsafe clause which confirms that an employee will still receive their minimum statutory entitlements should any part of an employment contract be deficient in providing the statutory minimums

McLennan Ross can provide legal advice in respect of drafting and interpreting employment contracts (including termination clauses) for employers and employees. Connect with our Labour and Employment team for assistance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.