TERMINATION CLAUSES AND HYPOTHETICAL RISKS: ONTARIO COURT OF APPEAL CONFIRMS “ANY TIME” IS ENFORCEABLE

In the combined appeals of Baker v. Van Dolder’s Home Team Inc. and Li v. Wayfair Canada ULC, the Ontario Court of Appeal provided long-awaited clarity on how courts should interpret termination provisions in employment contracts. The joint decision marks an important course correction in the law governing termination clauses.

Interestingly, the Court’s central message was both straightforward and rooted in well-established principles of contractual interpretation. Employment contracts must be read as a whole, using a practical, common-sense approach directed at determining the parties’ objective intentions. The decision marks a deliberate shift away from courts straining to invalidate employment contracts based on remote, implausible, or purely hypothetical interpretations. A contractual provision is not ambiguous or unenforceable simply because, during a trial, counsel creatively constructs a hypothetical scenario that presents a theoretical conflict with the Employment Standards Act, 2000 (“ESA”). Any competing interpretation must itself be reasonable when the employment contract is read as a whole.

The Dispute

Both employment contracts in Baker and Li permitted the employer to terminate employment without cause. The language at the heart of the appeals was “at any time” and “at any time and for any reason.” The employees argued that, read literally and in isolation, these words could, in theory, capture circumstances where termination is prohibited by legislation, such as during a job-protected leave or as a reprisal for exercising a statutory right.

‍The motion judge in Baker accepted the argument and found the termination clause unenforceable. By contrast, the motion judge in Li upheld the employment contract, including the termination clause, rejecting the same argument despite virtually identical underlying language.

The Words “At Any Time” DO NOT Reflect an Intention to Break the Law

The Court of Appeal rejected the argument that the phrases “at any time” and “for any reason” should be read literally and in isolation. Instead, it confirmed that, when read in context, those words simply meant the employer was not required to establish just cause or provide a legitimate business reason before terminating employment without cause. They did not authorize the employer to disregard its statutory obligations, nor did they reflect an intention to do so.

In reaching this conclusion, the Court emphasized that both contracts repeatedly referenced the ESA and the employers’ intention to comply with its minimum requirements. The employees’ interpretation required the Court to ignore those provisions and focus instead on a handful of isolated words, an approach the Court rejected.

The Court also found that the employees’ interpretation made little practical or commercial sense. Employers draft termination clauses to limit their liability, not to invalidate their own agreements by authorizing unlawful terminations. Accepting the employees’ interpretation would defeat the very purpose of the clause while exposing the employer to significantly greater liability, including common law notice, regulatory penalties and, in some cases, reinstatement or other statutory remedies. In the Court’s view, it was simply unreasonable to conclude that either employer intended that result.

Context Matters More Than Hypothetical Ambiguity

The principal takeaway from the Court’s decision is its distinction between a possible and a reasonable interpretation. The Court reaffirmed that genuine ambiguity arises only where contractual language, read fairly and as a whole, is reasonably capable of more than one interpretation. Where only one reasonable interpretation is available, ambiguity cannot be manufactured through strained interpretations, selective parsing, or reliance on implausible scenarios.

The Court was careful to confirm that its decision does not weaken the established principles governing the interpretation of employment contracts. Recognizing the inherent power imbalance in the employment relationship, the Court reaffirmed that these agreements remain subject to careful judicial scrutiny and that genuine ambiguity will continue to be resolved against the drafter, typically the employer. The important qualification is that an employee’s interpretation is preferred only where the contractual language is genuinely ambiguous.

Key Takeaways and Practical Implications for Employers ‍

For employers, the decision confirms that a termination clause will not be invalidated simply because isolated words, such as “at any time” or “for any reason,” could support a remote or hypothetical interpretation. Enforceability turns on the parties’ objective intentions, assessed through a practical and contextual reading of the contract as a whole.

Employers may therefore continue to use termination clauses that limit an employee’s entitlements upon a without-cause termination to the minimums prescribed by the ESA, provided the agreement clearly and consistently preserves all applicable statutory entitlements. ‍

The Court found all of the termination provisions enforceable and, as a result, declined to reconsider the decision in Waksdale. Therefore, a defect in a with-cause provision may therefore still invalidate an otherwise compliant without-cause provision. Employers should continue to review their employment agreements carefully to ensure that the termination provisions, considered individually and together, do not contract out of the ESA.

The foregoing is for informational purposes only, and should in no way be relied upon as legal advice. For legal advice tailored to your circumstances and business, please contact any of SOM LLP’s lawyer’s by email or telephone.