Introduction
Three recent Ontario court decisions offer employers a welcome shift and much-needed insight into the types of termination provisions that will withstand judicial scrutiny. The following summary outlines the key takeaways from these cases and what employers should keep in mind when drafting or updating their employment and compensation agreements.
Context: Dufault and the uncertainty around termination clauses
Many employers will recall the 2024 decision in Dufault v. The Corporation of the Township of Ignace, where the Ontario Superior Court held that a termination provision giving the employer the right to terminate employment “at any time” and in its “sole discretion” was contrary to Ontario’s Employment Standards Act, 2000 (“ESA”), and therefore unenforceable. This led to significant concern among employers, particularly after Baker v. Van Dolder’s Home Team Inc. appeared to apply Dufault even in the absence of “sole discretion” language. The Court’s decision in Baker is currently under appeal.
Against that backdrop, three recent decisions provide helpful guidance.