Are Your Employment Contracts Still Enforceable? What the Court of Appeal Decided in August

If you employ people in Ontario, you have probably absorbed a version of this over the last few years: courts keep striking down termination clauses, your contracts are probably no good, and if you ever have to let someone go you should expect to pay common law notice regardless of what you agreed.

There was reason for that gloom. As one commentator quoted by the Court of Appeal put it, the case law had “divided sharply on what can only be described as the most pedantic or trivial of grounds”, where “the failure to insert, or not insert, a word has often been fatal”.

On August 6, 2026, the Court of Appeal took the opportunity to settle it.

What Happened

The Court released one set of reasons for two appeals it heard together, Baker v. Van Dolder’s Home Team Inc. and Li v. Wayfair Canada ULC, reported at 2026 ONCA 568. Two Superior Court judges had looked at nearly identical wording and reached opposite conclusions: in Bakerthe words “at any time” made the clause unenforceable, while in Lia clause allowing termination “at any time and for any reason” was upheld.

Both employers won on appeal. Mr. Baker’s wrongful dismissal action was dismissed, and Mr. Li’s appeal was dismissed.

What the Court Actually Decided

The argument against these clauses was straightforward. The Employment Standards Act prohibits dismissal in certain circumstances, such as during a protected leave or in reprisal for asserting a right. A clause saying the employer may terminate “at any time” therefore claims a power the statute denies, and a clause that contracts out of the ESA is void.

The Court rejected that reading. At paragraph 47:

Read in context, this wording simply reflects a mutual intention that a without cause termination will be valid and legally effective regardless of when it occurs. But the use of this wording is not intended to render legally effective a termination that is expressly prohibited by the ESA.

On method, the Court applied ordinary principles of contractual interpretation. Courts should avoid a legalistic “magic words” approach in which particular words read in isolation determine the effect of a provision. And a clause is not ambiguous merely because someone can imagine another reading: genuine ambiguity arises only where there are two or more reasonable but competing interpretations considered in the context of the entire contract.

The Part the Headlines Are Leaving Out

Here is what an employer needs to understand before concluding their own contracts are fine.

The reasoning in Bakerturned on something other than the disputed words. His contract contained a separate clause promising that the company would comply with the Employment Standards Act at all times and that he would receive all entitlements the Act prescribes. At paragraph 46 the Court held that this express commitment “must include ‘at any time’ when Van Dolder exercises its right to terminate”.

In other words, the phrase survived because the rest of the contract made the employer’s intention plain. It was not rescued by a rule that “at any time” is inherently acceptable.

The same pattern appears in the with cause analysis. Mr. Baker’s contract provided that if he were dismissed for cause he would still receive any minimum compensation or entitlement prescribed by the Act. That proviso is what brought the clause into alignment with the ESA, and it is what distinguished his contract from the ones that failed in Dufault, De Castro and Rahman.

And the rule from Waksdale is intact. The employer asked the Court to convene a five-judge panel to reconsider it. The request was refused, and the Court declined to revisit the point because both contracts complied with the Act in any event. If one termination provision in your contract offends the ESA, the others still fall with it.

What This Means for Your Contracts

The decision is good news for employers who wrote their contracts carefully. It is neutral for everyone else, and it changes nothing for an employer whose agreement genuinely contracts out of the Act.

Three things are now worth checking in your own agreements.

Whether the contract expressly commits to complying with the Employment Standards Act, and does so in terms broad enough to cover termination. That commitment did the work in Baker.

Whether the with cause provision preserves the employee’s minimum statutory entitlements. This is where these agreements most often fail, and because of Waksdale a defective with cause clause takes the without cause clause down with it.

Whether the document is internally consistent. A contract assembled over the years from a template, an old precedent and something a manager added is exactly the document that produces competing reasonable interpretations, which is the definition of the ambiguity the Court described.

If your employment agreements were drafted more than a few years ago, or came from a template nobody has reviewed since, this is a sensible moment to find out where you stand. It is a much smaller exercise than discovering the answer during a dismissal.

About This Article

This is general information about a court decision. It is not legal advice and it is not a substitute for having your own contracts reviewed. Whether a particular clause is enforceable depends on its wording and its context, and where the stakes are significant that is a question for employment counsel.